Health as Human Capital - Aligning Incentives, Information and Choice

Americans use fewer healthcare services in 2010: What will we learn from this? Entry 1 - 2011

2011-01-18T13:29:00.001-07:00

There were fewer visits to the doctor in 2010 compared to the year before. What does this mean? It depends on whose opinion one reads.

See this WSJ article

The facts: There were fewer doctor visits, lab-tests, hospital admissions, and lower overall utilization in first three quarters of 2010 than the year before (1). Visits were down 7% in the first half of 2010 compared to 2009. Despite predictions that utilization would rebound in the third quarter when deductibles were met, it did not (2), which has surprised many. Such a downward trend is a new phenomenon. Insurers have never seen this before, even during past recessions.

According to the National Bureau of Economic Research (NBER), the cause of the decrease is primarily economic, resulting from losses of discretionary income and insurance (3). Its evidence stems from surveys where 27% of Americans report having cut back on their healthcare spending, compared to far fewer people who report cutting back in countries that have universal healthcare, such as Canada , France and the UK. Further supporting their theory, the decline in care-seeking seems was more evident in younger, lower income citizens than others (3).

While the economic “forgoing” explanation makes sense, there is no shortage of other opinions about why healthcare visits are down, including:

• Better Health. Flu season was much less severe than normal, lowering the severity of hospital admissions (2).

• Better Care Management. Providers have become better at providing just the right amount of care and negotiating better prices (2).

• Smarter Purchasing. The growth in consumer-directed plans has resulted in more consumerism and patients getting only the care that they need (1).

• Postponing Care. Patients are delaying optional procedures until they are more certain about their employment and coverage (4).

The first two explanations (better health and better care management) were offered by Humana officials during Q3 investor meetings, where they announced 30% per-share profit increases as a result of paying for less care while premiums went up (2). Presumably they wanted to reassure the media and shareholders that insurance gains were not the result of tragic hardships experienced by paying customers.

The last two explanations (smarter purchasing and delays of discretionary care) broaden the interpretation of NBER’s economic hardship argument in a useful way. Acknowledging that today’s financial struggles are very real (5) and many citizens face choices between medical care and other basic needs, the reduction in utilization also tells another story. Yes, some people are going without care that would help them. But others are saving money by exploring less expensive alternatives. While general doctor’s visits were down, Minute Clinic visits were up 36% from Q2 2009 to Q2 2010 (6). Consumers report looking for less-costly, convenient alternatives, avoiding unnecessary tests or procedures, and generally considering costs when they hadn’t before (1).

If anyone wondered whether putting purchasing power in the hands of consumers would change care-seeking patters, wonder no more. When we spend our own money, we pay more attention and we spend less if we can. A perfect storm of recession, higher cost-sharing, and new consumer-friendly alternatives like retail clinics has given us a (tiny) glimpse of true market pressure perhaps for the first time, which is not all bad.

What will we learn from the downturn in healthcare utilization?
If we allow ourselves to learn from both positive and negative consequences, it points us toward more consumer cost-sharing for services, not less. Some focus only on reductions in necessary or life-saving treatment to justify universal coverage and free care for all. But this reaction overlooks useful lessons.

First, many of the avoidance and substitution choices that price-sensitive consumers make are good ones, meaning they do not harm the patient, they encourage innovation, and they save money across the system. These include switching to generic drugs, trying lifestyle improvements before a medical procedure is used, calling for a refill rather than seeing a doctor, and going to less-expensive providers when appropriate rather than to specialists. Why remove incentives that drive responsible choices?

The pieces of a smarter, consumer-oriented system are still evolving, albeit in piecemeal fashion. Combined, these pieces put more money in the hands of the individual, provide better information about cost and quality of service, and offer access to more affordable alternatives while maintaining higher costs for services that may be discretionary. A few examples of this smarter, consumer-oriented system include:

• funded health savings accounts, so money is available to choose and purchase medical services;

• better, more timely price information (such as that coming from organizations like ChangeHealth);

• better comparative information about physicians (such as that coming from organizations like HealthGrades);

• alternatives to emergency rooms for off-hour non-emergencies (such as Teladoc);

• low- or no-cost primary care, offering a package of consultation and maintenance medications (such as WeCareTLC);

• information services that support informed decision-making when care is complex and/or technical (such as KnovaSolutions);

• wider recognition of the link between work environment, benefits design and health-related costs.

Together, elements such as these may have contributed to the glimmers of a consumer market that appeared in the 2010 economy.

What health plans learn from the downturn in healthcare utilization Health plan leaders have largely rejected the notion that lower utilization is here to stay, saying that they don’t anticipate lowering premiums next year because consumption will inevitably “return to normal”(2). Conversely, industry analysts predict continued declines in 2011 (2).

But insurance plans do face an interesting dilemma: the decline in utilization has brought most plans to a Medical Loss Ratio (MLR, the portion of the premium must be spent on actual care or quality improvement versus administrative costs and profits) below the new legislative requirements for 2011 (7, 8).

In other words, if premiums stay high and utilization stays lower, plans will have to find ways to “spend more” on healthcare to avoid paying penalties. Some reports indicate they intend to do just that (2), although one might wonder how they can ethically accomplish that task while patients consume less. Something tells me that plans have ways to increase MLR that may or may not coincide with what patients want or need most.

So, what will be learned from lower utilization? How to fund, empower, and inform consumers to take an ever-increasing role in shaping more efficient healthcare? Or how to further convolute spending to meet legislative requirements rather than respond to the greatest needs of patients? It’s our choice.

Why this matters: The results of our natural experiment are in. Consumers do respond to financial incentives, with both positive and negative consequences for everyone involved. We can capitalize on this increase in consumer awareness and expand opportunities to provide information and purchasing power, or we can depend on a system that has misaligned incentives to charge ever increasing premiums while delivering just enough to keep federal auditors (not necessarily patients) happy.

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References

1. Johnson, A., Rockoff, J. D., and Wilde Matthews, A. Americans cut back on visits to doctor
. The Wall Street Journal, 2010, Health, (accessed January 17, 2011).

2. Berry, E. Insurers' profits rise as they spend less on care. American Medical News, Nov 22, 2010; (accessed Jan 17, 2011).

3. Pear, R. Economy led to cuts in use of health care. New York Times, 2010, (accessed January 17, 2011).

4. Henry J. Kaiser Family Foundation. Americans cut back on health care, Consumers Union finds. Medical News Today, Oct 9, 2009; (accessed Jan 17, 2011).

5. Fuhrmans, V. Consumers cut health spending, as economic downturn takes toll .The Wall Street Journal, 2008, Health, (accessed January 17, 2011).

6. Ford, J. Minute Clinic visits up 36%. Nurse Practitioners and Physician Assistants Advanceweb.com, Sep 27, 2010; http://nurse-practitioners-and-physician-assistants.advanceweb.com/News/Front-Center/MinuteClinic-Visits-Up-36.aspx (accessed Jan 17, 2011).

7. Berry, E. Health plan performance.amednews.com, Aug 16, 2010; (accessed Jan 17, 2011).

8. Health as Human Capital Foundation. One minute left in the game. Score: Patient Education 100, Patient Accountability 0. Entry 11 - 2010 . Oct 5, 2010; (accessed Nov 12, 2010).

I have a Holiday wish: that we muster the courage to reign in national spending. Entry 13 - 2010

2010-12-14T18:06:00.008-07:00

‘Tis the season to wonder how to work off the extra pumpkin pie calories and pay off those Black Friday purchases! We know that a dollop of reality isn’t anyone’s holiday favorite,, but it may be timely for all of us to acknowledge the belt-tightening our country must face as we approach the New Year. If social spending cuts in England, Greece, Spain, Germany and other countries are any prediction (1, 2), some would argue that we are late in taking action. Is there hope that we’ll wake up and realize that now is the time to start trimming our national spending—even as we trim our tree—by making tough, necessary choices?

Consider some sobering facts. In the year 2015 (3):

Government spending (federal, state, and local) per capita will be over $25,000 per year.
Healthcare will become the single largest component of spending (besides interest on debt).
Spending will far exceed revenue leaving us with over $20 trillion in debt.

Concerns about spending come in many forms: the eventual impact of cummulative debt, sources of revenue to cover unfunded commitments in social security, Medicare and Medicaid, and the risk of owing interest to other countries who buy our debt. All of these deserve attention.

But these are our greatest longer-term risks:

1) The opportunity-cost of spending an increasing amount on healthcare instead of the many other deserving investments we could be making in other areas (education, renewable energy,infrastructure, or technology).

2) The harsh reality of demography (the biggie). The ratio of wage-earners (20-64 year-olds from whom we collect taxes) to recipients (youth and retired people) is in rapid decline. Economists call this the dependency ratio, expressed as how many people we need to fund per 100 workers. A few decades ago, the number was in the 50s (1 recipient for 2 workers) (4). By 2040, that number is projected to be 86; approaching one recipient for each worker (5).

The burden of this ratio is obvious, and it translates into serious consequences. Other things being equal, a higher dependency ratio reduces the overall standard of living per capita and wealth of a nation. For example, assume that the ratio changes from one worker for every non-worker to a situation where one worker must provide goods and services to himself and two non-workers. Surely, we want to lighten this burden as much as possible, don’t we?

But are we willing?
Anyone following the recommendations from the bipartisan federal debt commission released this month had to be startled by its stark description of our financial plight, which is so rare in politics. On December 1, the commission’s report stated that “without the sacrifices it calls for, a fiscal ’reckoning will be sure and the devastation severe’” (6). The commission leaders explained what policy makers know but are afraid to say: because of aging, life expectancy, overspending and other trends, we can no longer afford to provide the tax breaks, financial support and services government promised to earlier generations. Despite some changes in the political landscape in the past election, thus far neither party seems willing to risk re-election to make significant cuts in popular programs.

Healthcare is a significant part of our out-of-control spending.

How much can we afford to spend on healthcare? Like other untouchable political topics, policy makers often avoid limits on spending because of the potential media backlash. If medical inflation continues at its current pace, we can expect that the average lifetime medical expenditure for each citizen will exceed $750,000 (7). This number is an extrapolation from research conducted BEFORE many of the new high-cost technologies and medications hit the market. Is this the right number? Should we spend a half-million, or a million dollars? And if healthcare spending rises, what other public services are we willing to forgo? Education? Public safety? Clean water? Remember, there is no free lunch, so we each have a responsibility to consider the value of the services we demand from our government.

A new expensive breed of healthcare treatments will force tough choices.
In recent years, a new type of medication has become available, called “biologics.” The name refers to the process needed to create them: a biological system. Essentially, scientists manipulate a living cell from a biological organ (such as a hamster’s ovary) to trick it into producing a specialized molecule that can fight disease in a more sophisticated way than chemical drugs (8). Then, biologics are delivered to patients directly through the bloodstream, not through pills. The results can be miraculous—permanent remission (with continued treatment) for some types of leukemia, huge improvements in pain, function, and appearance for rheumatoid arthritis and psoriasis.

However, miracles don’t come cheap. Because development costs billions and because each batch requires a biological system to manufacture molecules, the prices are staggering: tens or hundreds of thousands of dollars per patient per year. As a result, these products have quickly become a primary revenue stream for drug makers, and a growing portion of overall medical expenses. The pharmaceutical industry expects to sell $800 billion in biologic products per year by 2015 (9, 10).

A miracle for every patient? Not so fast.

We are fast approaching a point where we will have to take cost into account in our choices. A story in recent months described a cancer patient who received a new medication, paid for by Medicare. The drug cost $93,000 and had been shown to extend life by an average of 4 months (11). The patient admitted that he didn’t think the result was worth the cost, but since Medicare was paying, he figured “why not?” In another example, patients received a drug costing $80,000 for an extra 36 days of life (12).

Decisions about what medical care we can or cannot receive are emotionally charged, highly personal and rarely cut-and-dry. I firmly believe that patients should play an active role in care choices. That said, in the context of the burden on future workers, there is a need for those decisions to be made with some consideration of a “greater good.” What can each of us do to lessen the burden on everyone? Are there individual choices that serve both the individual and the greater good? Are 36 more days of life for me worth not immunizing 5,000 more children? Can I avoid risk, save money, and improve my overall health by committing to weight loss despite becoming eligible for a $20,000 lap-band stomach surgery (13)? Are there proven options for my back pain other than surgery that I should try first?

If we don’t figure out a way to get a handle on cost, others will make choices for us. Great Britain solved this dilemma by simply deciding not to provide any treatment costing more than $50,000 for extending life by one QALY (Quality-Adjusted Life Year) (14). In the U.S., recent reform actually forbids setting a lifetime maximum (which often had been set at one or two million), which reinforces the mentality that we should spend “anything and everything” to save lives, and no other tradeoffs are worthy of consideration.

As far off as it may be, I have a holiday wish.

I wish that the general public would get fed up with politicians who protect their own jobs rather than protect the country’s future and demand that our spending be drastically reduced. I wish that people would decline expensive, discretionary procedures in favor of trying exercise, diet, physical therapy, and effective medications first. I wish every patient would ask if there are adequate, less-expensive alternatives available. I wish people would think twice about the potential expense they will face as a result of riding without a helmet or continuing to smoke. I wish end-of-life patients would have peaceful, loving care at home, and forego that one, last, ineffective treatment. I wish that every single healthcare decision would be made with consideration for what other critical needs our nation must address with limited funds.

Why this matters: Contrary to the current political discussion, healthcare spending isn’t just about healthcare. It’s about all of the other programs and services our nation cannot afford if healthcare submerges the budget and expands the national debt. It’s time for all of us to assume responsibility for our own everyday health decisions, consider the greater good and make room for a real miracle: spending our children can afford.
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References

1. Lyall, S. and Cowell, A. Britain Plans Deepest Cuts to Spending in 60 Years. The New York Times, October 20, 2010; (accessed Dec 13, 2010).

2. Francis, D. Euro Crisis Forces Deep Cuts in Social Benefits. The Fiscal Times, Jun 3, 2010; (accessed Dec 13, 2010).

3. Chantrill, C. Per Capita Government Spending in the United States Federal, State, and Local Fiscal Year 2015. usgovernmentspending.com (accessed Dec 13, 2010).

4. de Looper, M. and Bhatia, K. International Health: How Australia Compares. Australian Institute of Health and Welfare, 1998; (accessed Dec 13, 2010).

5. Kinsella, K. and He, W. P95/09-1, An Aging World: 2008. U.S. Census Bureau, International Population Reports, U.S. Department of Health and Human Services, Jun, 2009; (accessed Dec 13, 2010).

6. Memoli, M. A. In final report, federal debt commission warns of fiscal 'reckoning'. Los Angeles Times, Dec 1, 2010; (accessed Dec 13, 2010).

7. Alemayehu B, Warner KE: The lifetime distribution of health care costs. Health Serv Res 2004;39:627-42.Note: lifetime costs were multiplied by two times the past decade’s Medical CPI.

8. Growing Biologic Drugs, From Vial to Vat. The New York Times, Jun 11, 2007; (accessed Dec 13, 2010).
9. Carlson, B. Biologics Pipeline Set to Replenish Coffers. Gen News: Genetic Engineering & Biotechnology News, Aug 1, 2010; (accessed Dec 13, 2010).

10. Evans I: Follow-on biologics: a new play for big pharma: Healthcare 2010. Yale J Biol Med 2010;83:97-100.
11. Marchione, M. Provenge, Cancer Drug, Costs $93,000: Sky High Drug Prices Impact Life-Or-Death Decisions. The Huffington Post, Sep 26, 2010; (accessed Dec 13, 2010).

12. Johnson, A. Cost-Effectiveness of Cancer Drugs Is Questioned. The Wall Street Journal, Jul 2, 2009; (accessed Dec 13, 2010).

13. Associated Press. FDA Panel Recommends Broader Lap-Band Approval for Obesity. Daily Finance.com, Dec 3, 2010; (accessed Dec 13, 2010).

14. Measuring effectiveness and cost effectiveness: the QALY. National Institute for Health and Clinical Excellence, Apr 20, 2010; (accessed Dec 13, 2010).

When it comes to health, what numbers do most of us REALLY need to know? Entry 12 - 2010

2010-11-12T15:21:00.002-07:00

In a 2009 study of a heart disease risk, low-income women were screened at baseline for hypertension, high cholesterol, and diabetes (1). Participants were given their biometric “numbers” by their physicians at the time of screening. One year later, researchers asked the women about their risk status. A majority of high-risk women reported that they had never been told they were at risk!

66% of those with hypertension reported never having been told they were hypertensive.
54% of those with high blood glucose reported never having been told they had high blood sugar.
45% of those with high cholesterol reported never having been told it was high.

According to the researchers, the study protocol required providers to inform the high-risk woman verbally about the result and confirm it in writing. Certain factors made women more likely to report never being told. Those who had lower incomes, were of older age, and were not Caucasian were most likely to say they were never told. In other words, those who were more likely to be at risk were least likely to have understood or remembered being told that they were.

An unusual case?
We may be tempted to dismiss such results as particular to a lower-income, less-educated group and unimportant for those of us who work with younger, informed, educated employees. Not so fast. Apparently, we can expect ten to forty percent of patients to report not having been told of a condition, when they had been (2, 3). Plus, even in populations that remember that they have hypertension, many don’t know their current blood pressure numbers, nor what they should be (4, 5). Further, when told what they can do about their blood pressure, patients are much more likely to “remember” that they were prescribed medication versus remembering they should change their diet or exercise.

Do we over-measure? What about “know your numbers”?
“Know your numbers!” is a popular expression in wellness programs, encouraging participants to get their regular health screenings. The logic is that if a person becomes aware of his health risks (such as high cholesterol or high blood pressure), it will increase the likelihood that he can control the problem. Once high-risk people are identified with an actual number, we hope it makes their risk more tangible. Plus, programs can reach out to newly-identified people who can get counseling and treatment from doctors. In theory, “know your numbers” leads to “healthy numbers,” which means a healthier person. But that assumes numbers actually mean something. What if the actual numbers have less of an impact than is traditionally assumed?

What numbers should we know?
Before thinking through the implications of so much “forgetting,” I went back to remind myself about general recommendations for screening. The US Preventive Services Task Force, the national agency that reviews evidence about tests and treatments, recommends adults get screened for blood pressure every other year, or more often if their levels are elevated. They do not recommend testing for high cholesterol until age 35 for men and age 45 for women, unless there are other risk factors. For those with healthy values, one test every five years may be sufficient. And the task force does not recommend general screening for glucose for any adult unless blood pressure is high or other risk factors exist. Then, for those whose readings are low-risk, retesting should occur once every 3 years (6, 7).

So in a nut shell: few of us need to be screened until a little later in life unless we have other risks (e.g., the obvious: overweight, not exercising, smoking, or family history of a disease), and we don’t need to be rescreened very often unless other things come up. It makes me realize that perhaps we have over-measured for reasons other than health—to prove the need for programs or measure their impact, for example—not because the numbers are that more helpful than obvious things we already know. In a world where we have limited resources, are the dollars we spend on screening worth the investments?

Perhaps we over-think and over-measure health in ways that add unnecessary expense and little value. For the most part, one can tell if health gets in the way of people’s day-to-day lives by knowing a few things: do they usually get a good night’s sleep, are they generally happy with life, and are they able to do most of the things they need to do on a daily basis? One can also get a sense if they are heading for health problems in the future with simple information: if they smoke, if they abuse substances, if they get regular exercise, and about how many pounds away from a normal weight they are. Certainly there are other factors, but mostly health is common sense.

Not only do most of us know what make us unhealthy, by default we also know what can help us get well. All of the most common illnesses become less likely if we adopt basic healthy habits. Again, this depends on common sense. While at a certain age and under certain conditions screening makes sense, maybe the only numbers most of us need are: packs of cigarettes smoked, miles walked, and extra pounds on our bodies.

The cost of knowing numbers that aren’t remembered
I have often worried about the excess money spent on repeated screening for relatively healthy people in corporate programs. Now that I realize that many screening results are disregarded or misunderstood, I worry even more. If we screen virtually everyone, then find the one in three who has a high reading, a third or more won’t remember, and another third go to a doctor and only remember to take pills rather than exercise or eat better…that only leaves one in nine who heard and remembered that he needs to improve his health habits. At a conservative cost of $40 per screening, it costs $360 per person (the one of nine who had risk, heard the news, and remembered) to find out that healthier habits would help them, which they most likely knew already.

If the numbers don’t mean anything, are they worth knowing? One wonders if the Cleveland Clinic approach would make numbers matter more. The Cleveland Clinic does not hire people if they smoke (they are tested for nicotine) and charge morbidly obese employees a lot more for health insurance if they do not attain a healthier weight (8). It is likely those employees know the important number (how many pounds they have to lose), whether they remember their cholesterol level or not.

Why this matters: The value of screening can often be overstated or expressed in terms of the few people whose dangerous values were detected ‘in the nick of time.’ It is important to remember that screening and prevention are not the same thing. If we follow the evidence, screening has a place in overall care for the right people, in the right circumstances. For the rest of us, we probably know what habits would improve our health and can decide to do so without being assigned a clinical value, which we might forget anyway. There are health and financial consequences to being unhealthy. However there are also financial consequences to unnecessary testing, but that seems to be a number we rarely hear about.

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References

1. Khavjou OA, Finkelstein EA, Farris R, Will JC: Recall of three heart disease risk factor diagnoses among low-income women. J Womens Health (Larchmt) 2009;18:667-75.19405860

2. Croyle RT, Loftus EF, Barger SD, Sun YC, Hart M, Gettig J: How well do people recall risk factor test results? Accuracy and bias among cholesterol screening participants. Health Psychol 2006;25 :425-32.16719615

3. Martin LM, Leff M, Calonge N, Garrett C, Nelson DE: Validation of self-reported chronic conditions and health services in a managed care population. Am J Prev Med 2000;18:215-8.10722987

4. Oliveria SA, Chen RS, McCarthy BD, Davis CC, Hill MN: Hypertension knowledge, awareness, and attitudes in a hypertensive population. J Gen Intern Med 2005;20:219-25.15836524

5. Kravitz RL, Hays RD, Sherbourne CD, et al: Recall of recommendations and adherence to advice among patients with chronic medical conditions. Arch Intern Med 1993;153:1869-78.8250648

6. U.S. Preventive Services Task Force.Screening for High Blood Pressure. Dec, 2007; (accessed Nov 12, 2010).

7. U.S. Preventive Services Task Force.Screening for Lipid Disorders in Adults . Jun, 2008; (accessed Nov 12, 2010).

8. Singer, S.Cleveland Clinic pays its employees to get, stay healthy. Jan. 2, 2010; (accessed Nov 12, 2010).

One minute left in the game. Score: Patient Education 100, Patient Accountability 0. Entry 11 - 2010

2010-10-05T09:37:00.008-06:00

There is a sad irony in new healthcare reform provisions released last week. It rewards (or at least relieves financial pressure on) health plans for virtually every bit of educating, assessing, coaching and reminding it does with patients. Then, it penalizes them for trying to give consumers purchasing power.

The issue: the definition of MLR.
Medical Loss Ratio (MLR) is a term used to describe the portion of the total healthcare premium spent on “medical services” as opposed to other expenses usually referred to as administrative services. MLR is actually expressed as a fraction or percentage indicating what portion of premiums is spent on supposedly REAL value delivered to covered members, compared to operational costs, profits, or inefficiencies.

In national healthcare reform (now referred to most commonly as ACA, the Affordable Care Act), legislators decided to mandate a minimum MLR: 80% (or 85% depending on the size of the group being insured). A plan achieving a lower MLR will incur a penalty, to be paid to members in the form of rebates.

The intent of this minimum MLR was to encourage better, more efficient care delivery and operations and discourage profit-taking.

One small detail: the ACA did not define which items belonged inside versus outside of the MLR calculations. The definitions were left as a “To Be Determined” category.

One does not need to know the intricacies of healthcare to guess what has been happening in Washington—a mad dash to have products and services considered “medical,” or as a contributor to medical “quality.” Every stakeholder group possible has been lobbying to be considered INSIDE MLR, rather than risking possible extinction by falling outside essential services. Services that improve efficiency of care but do not treat illness have traditionally been considered administrative. These are now in a rush (appropriately or not) to be redefined.

You may have heard a collective sigh of relief on September 23rd when the National Association of Insurance Commissioners (NAIC) gave their preliminary recommendations about what will be included in MLR (1). After the arm wrestling, the apparent decisions are:

Any personalized wellness program, education, outreach, self-management, compliance monitoring, decision-support and other illness-specific programs are considered inside MLR. However, they need to deal with an issue specific to the person. Apparently, general newsletters are not specific enough (2).
In another hotly-contested area, fraud detection falls under MLR—but only up to the amount recovered (1, p. 31).
Similarly, the cost of using information technology is included in MLR, but not the initial start-up or update to such systems. (1, p. 31)
The topic most likely to be challenged by the Obama administration appears to be the NAIC’s exclusion of most state and federal taxes from the denominator (3, 4). Some claim that the “spirit” of the bill was to exclude only a small amount of additional taxes caused by reform. By removing all taxes from the denominator, it makes it easier for health plans to reach the 80% or 85% figure because the denominator is smaller.

So, what about steps that encourage patients to be smarter consumers?
As readers know, we believe that a high-deductible health plan (HDHP) combined with a health savings account (HSA) has mutual benefit for the plan sponsor as well as the consumer. Combined with resources that help inform consumers about price (see products like Adjudica (5)), such plans activate consumers to take accountability and seek care appropriately. Even better, lower premiums associated with HDHPs allow more money to go into consumers’ pockets.

Sadly, the new MLR definition makes it much more likely that a well-run consumer-directed health plan (CDHP) will NOT meet the required level and will be assessed a penalty. Here is why:

Typical health plan scenario: Assume that a traditional health plan has a $250 deductible. If the premium is $5,000, the plan needs to account for at least $4,000 in qualified medical expenses to meet the minimum MLR requirement of 80% ($4,000/$5,000).

CHDP scenario: Let’s say the same population is switched to a $2500 deductible, and put $2,500 in an HSA account. The first $2,500 of medical spending will be assumed by the individual—not the health plan. So even if utilization did not go down (which it would) and each person spent $4,000 on medical services, the plan would only be providing $1,500 of services ($4,000 minus the $2,500 deductible). Even if the premium for that plan was cut in half (and it would most likely be more expensive than that) the MLR will still be only 60% ($1,500/$2,500). So, despite no true increase in out-of-pocket costs and the same amount of spending, as the rules stand now, the HSA will not count toward medical spending.

As it stands now CDHP-oriented plans will be required to deliver significant rebates
In an opinion on a separate, but related, matter, the Congressional Budget Office suggests that the actuarial value of a CDHP should include the amount a plan sponsor places in a health savings account (6). Other experts agree that MLR calculations cannot be applied to high-deductible plans in the same way as traditional plans (7).

However, thus far the only provision for CDHP in the NAIC document seems to be an adjustment factor—which for a $2,500-deductible plan would involve multiplying the MLR by 1.16. This still wouldn’t get the MLR in our example (60% becomes 69%) close to the required level. NAIC also allows plans to average their deductible amounts across all plans, meaning that as long as there is a low deductible plan (with sufficiently high utilization) to balance the high deductible plan, the insurer can, possibly, achieve the required MLR.

While it is likely that the final rules will figure out a way to accommodate the 10 million+ people who already have HDHPs and HSAs (8), the underlying question we must ask is: why weren’t HSAs considered in the first draft? Why discourage a proven method for engaging consumers and managing utilization?

Now that all things “wellness” are classified inside the MLR definition, we can anticipate inclusion of a wide range of both proven as well as ineffective educational programs to fortify “medical spending” and keep both ratios and premiums high. Plans will be able to justify virtually any awareness campaign or public health effort. But health accounts—that reward individuals for being wise consumers and staying healthy—will put insurers at greater risk of being penalized.

If the current score is: Patient Education 100, Patient Accountability 0…maybe our last play needs to bring consumers into the game?

Why this matters: There is no greater tool for improving health literacy and reducing cost than the increased transparency and consumer-activation that results from CDHPs. Even if proposed provisions are modified, the potential penalty associated with CDHPs illustrates just how disconnected policy makers are from evidence. Affordability in healthcare cannot happen without engaged consumers.

Note: This blog is focused on the effect new MLR rules on CDHPs, however, the rules will also discourage so-called “mini-med” plans that provide limited coverage for college students and minimum-wage workers. Last week McDonald’s announced it might have to drop healthcare for 30,000 employees (9). Unfortunately, this is the type of collateral damage that happens when government legislates a one-size-fits-all solution when consumers need and want a variety of options.
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References

1. National Association of Insurance Commissioners. Regulation for Uniform Definitions and Standardized Rebate Calculation Methodology for Plan Years 2011, 2012 and 2013 Per Section 2718 (B) of The Public Health Service Act. Sep 29, 2010 ; (accessed Oct 4, 2010).

2. Goozner, M. Medical loss ratio defined. Sep 27, 2010; (accessed Oct 4, 2010).

3. Health Insurer Rule Draft Yields Few Surprises. Sep 24, 2010; (accessed Oct 4, 2010).

4. Pecquet, J. Insurers' concerns with medical loss ratio outlined. Sep 24, 2010; (accessed Oct 4, 2010).

5. Adjudica. Our goal: Create healthy and savvy consumers. (accessed Oct 4, 2010).

6. Congressional Budget Office. Key Issues in Analyzing Major Health Insurance Proposals. Chapter 3: Factors Affecting Insurance Premiums. Dec, 2008; (accessed Oct 4, 2010).

7. Ramthun, R. Health Reform Provisions that Could Impact Consumer-Driven Health Plans. Apr 12, 2010; (accessed Oct 4, 2010).

8. AHIP Center for Policy and Research. January 2010 Census Shows 10 Million People Covered by HSA/High-Deductible Health Plans. May, 2010; (accessed Oct 4, 2010).

9. Adamy, J. McDonald's May Drop Health Plan. Sep 30, 2010; (accessed Oct 4, 2010).

Mandated insurance coverage means mandated cost. What do we really want to pay for? Entry 10 - 2010

2010-09-08T13:59:00.001-06:00

Have you ever tried to purchase cable television with just the channels you want to watch, and been told that you need to buy the ‘whole package’ to get service? Sound like your cell phone plan?

We often see private companies ‘bundle’ services to boost revenue or maximize their profit margins, and as consumers, we have to decide if we’re willing to purchase these sorts of arrangements. But what would happen if the government were to require the public to purchase a service, and then mandate a very expensive bundle of services without giving consumers a choice about what’s included? Welcome to healthcare.

While few of us spend the energy to pay close attention, the details of healthcare legislation are being decided not by patients, but by industries, legislators, and lobbyists. Most of the legislated components of healthcare involve small variations in the overall ‘bundle’ of requirements that are barely noticeable —and that’s the problem. Because even tiny decisions can have huge implications (to someone), those who have a lot at stake are trying to get in on the action. It reminds me of a quote:

"Democracy is four wolves and a lamb voting on what to have for lunch."

-- Ambrose Bierce

State Insurance Mandates Add Up

Anyone who survived math in junior high learned how to calculate a fraction. Very small fractions are almost unnoticeable compared to the whole. A number as small as one-two-hundredth, .005, for example, is minute; virtually unnoticed.

That’s how most mandates get included. A group with a worthy cause approaches a state legislature asking for mandatory coverage of specific treatments among an extremely large number (for example, birthmark removal or therapeutic massage). One can imagine proponents arguing that it costs only pennies to help improve quality of life. Not wanting to appear uncaring, legislators have been agreeing—frequently.

According to the Council for Affordable Health Insurance (CAHI), there are now more than 2,100 specific state mandates added to health plan requirements. Rhode Island, the most highly-mandated, has 70 while Idaho has only 13. Overall, there are 135 different types of mandates, some adopted by all states, others by only one (1). Examples of mandated services include: breast reduction, oriental medicine, special footwear, athletic trainers, wigs, and off-label use of pharmaceuticals (meaning coverage for uses of a drug that have not yet been approved by the FDA). It is a process dominated by political motives, not scientific or medical evidence that they are our “best” choice for saving or improving lives.

In math class, we also learned that if you add many, many, many small numbers together they eventually add up to something substantial. Taking the CAHI list for 2009 and using their figures to calculate the cost of these state mandates, we can conservatively estimate that all of the small government mandates in healthcare ‘bundling’ add up to a very significant 45% costs on top of non-mandated coverage (if we used the high end of CAHI’s estimated value instead of the midpoint it totals 72% in additional cost).

To be fair, almost of us might agree with the top ten most commonly adopted mandates. These include things like coverage for newborns, adopted children, and mammograms. If we assume that mandates adopted by 45 states or more are universally “worthy,” what remains? Still, an additional 33%.

Remember, the extra 33% does not necessarily reflect a sicker population or “better” care. It’s just more of certain things that were chosen because someone asked—not through a structured process. What is too easy to forget, is that—because resources are not infinite—saying ‘yes’ to one thing always means having to say ‘no’ to another (eventually). So, including certain types of cosmetic surgery for arguably noble reasons may steal funding away from, say, flu vaccine outreach programs which can literally save lives.

Don’t get me wrong, I would love to get massages, fitness-center dues, vitamins and fruit smoothies for “free.” But that isn’t what happens. Instead we are all forced to pay for an accumulating number of services, which ironically means that fewer and fewer people are able to afford the very basic care they need.

Most of these added services get rolled quietly into a massive package called “required minimum coverage.” In the few cases where the issue gets media attention, we all, like legislators, can be convinced that each cause deserves attention (e.g., the chain emails encouraging citizens to DEMAND that health plans cover extra days in the hospital following mastectomies, which is now mandated in 25 states).

Citizens cringe at any limitation that smells like rationing, but somewhere there needs to be an apolitical process for choosing what gets included. Right now, it seems to be more about heavy lobbying than about true medical need and affordability for the general public. Shouldn’t there be a way for me to purchase a lower level of insurance coverage and pay less? Whether we determine the “right” package(s) through market demand, scientific review, or prevalence of need, there needs to be a better process of signing individual procedures into law.

For television, at least there is a basic digital package to get local stations. For cell phones, we can find pay-as-you-go minimum cellular packages. Unfortunately in healthcare we have to take all-or-nothing, leaving us with overpriced insurance and ultimately, fewer people who can afford it.

Why this matters: Hidden deals and hidden costs do influence what health coverage includes and how much it costs. Unfortunately, the added features rarely are chosen because they make medical sense, or because consumers have determined their value. It is unlikely to change unless we engage patients in financial choices and (somehow) stop creating medical rules down at the State Capitol.

References

1. Bunce, V. C. and Wieske, J. P.Health Insurance Mandates in the States, 2009. (accessed Sep 8, 2010).

No child left (with a small) behind. America’s future workforce unfit for duty. Entry 9 -2010

2010-08-02T12:58:00.005-06:00

Obesity is now a top reason that recruits cannot qualify to serve in the military (1), along with failure to finish high school and having a criminal record. Nine million young people are too overweight to serve and each year 1200 recruits are dismissed because of persistent weight issues. One former surgeon general describes obesity as moving beyond an epidemic to a “state of emergency” (1).

What will workers look like in ten or twenty years? Are we building a capable, healthy workforce? By many indications, no. Employers in Maine estimate that the rate of obesity (defined as a Body Mass Index of 30 or more) in their state workforce could reach as high as 80% within ten years (2).

Consider these statistics:

Fewer than one in five high school-age youth are physically active for an hour every day, only one-third are active for an hour most days (3).
Fewer than one-half of high school students beyond 9th grade have any organized PE classes in a typical week (3).
Kids ages 8-18 now spend almost eleven hours per day on electronic media (e.g., computers, television, i-pods) (4).
Kids average 1.5 hours of texting each day on top of other media (4).
One study found that 70% six- to eight-year-olds believe fast food is healthier than home-cooked food (5).
Fewer than one in five children receive the daily recommended serving of vegetables, and 25% of those vegetables came in the form of French fries (3, 5).
31% of children are overweight or obese (6).

When I see statistics like these, it is tempting to dismiss their importance and assume that this is the 21st Century version of kids-will-be-kids; when they grow up they will be fine. But will they?

Findings from a twenty-year study released last month make me wonder. Researchers found that persistent obesity extending from one’s high-school years has a significant impact on health and socioeconomic status at age 40 (7). Controlling for socioeconomic status in childhood, an obese child is significantly less likely to seek education beyond high school, and more likely to have a chronic health condition at age forty.

Plus, young adults who were persistently obese between 19 to 35 years of age were over 50% more likely to have a financial hardship (be receiving financial assistance from welfare or unemployment), and 40% more likely to have a social hardship (no partner) at age 40.

The implications of obesity from this perspective are sweeping: it’s not just about health anymore, but about future motivation, achievement, job success, and relationships with others.

In other words: today’s unmotivated, under-achieving, unhealthy students are much more likely to become our unemployed who require public financial assistance in 2030.

The critical intersection of skills, motivation and health.
We often describe human capital as having three distinct components: skills, motivation and health. Each human capital asset acts in conjunction with the other two. The longitudinal study mentioned above is a powerful example of how disruptions in one area can begin to impact the others. For example, society recognizes obesity as a health risk, but this research confirms that it is also a threat to one’s skill development and motivation. Interestingly, the authors also found that kids (in any socioeconomic group) who succeeded in school were less likely to become obese in the first place. In other words, skills and education have an impact on health and motivation. All three combine to predict one’s financial and social wellbeing as adults.

Not unrelated, studies on electronic media find that more hours playing video games and watching television are associated with less physical activity and poorer grades—and higher rates of obesity.

Many, many factors contribute to the obesity levels in American youth. At home, kids entertain themselves with sedentary activities; at school, tight resources and emphasis on test scores have limited “non-essential” topics like art, music and PE (8). Overall, busy schedules make home cooking and active family outings less frequent. Public media usually define obesity as a problem—but more often it is categorized as a HEALTH problem, separate from “important things” such as career and earnings.

Obesity’s threat to national security, productivity, and economy.
If nine million young people are unfit for the military, how many are insufficiently fit or trained for the workforce at large, even in less-physically-demanding jobs? And how many will underachieve because obesity influences self-esteem, motivation and skill development?

Yes, obesity is the result of a simple calorie imbalance: too few burned, too many consumed.

But now we know the consequences are anything but simple. Today’s overweight kids will become tomorrow’s underperforming workforce, at a time when we will need all the high-performing human capital we can muster due to:

• increased competition from developing nations like China and India,

• a fast-declining ratio of active workers to retirees, and

• a huge national debt that will need repayment.

We must make a critical distinction: we cannot blame obesity alone for creating an unfit workforce any more than we can blame schools for obesity. It is all connected. Instead, our society must decide that ALL aspects of human capital must be grown and protected as a key national resource.

If ever we needed a generation fit-for-duty, it is now. Think about it. Or, better yet, grab an apple, take a long walk with your kids and talk about it.

Why this matters: The name of this organization is the Health as Human Capital Foundation. There is no better example of a health threat to our nation’s human capital than the current wave of obesity washing over the country. This is an issue that requires immediate attention from families, schools, employers, and communities. Don’t assume it is someone else’s problem to fix. Each of us should take responsibility for our own fitness for duty—whatever duty that is.
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References

1. Starr, P.Health Experts Call Obesity A Threat to National Security. Sep 10, 2009; (accessed Aug 2, 2010).

2. Richardson, J.Youth obesity scares businesses. Jul 5, 2010; (accessed Aug 2, 2010).

3. Centers for Disease Control and Prevention.Youth Risk Behavior Surveillance System -- United States, 2009. MMWR 2010;59(SS-5):1-142 (accessed Aug 2, 2010).

4. Kaiser Family Foundation.Daily Media Use Among Children And Teens Up Dramatically From Five Years Ago. Jan 20, 2010; (accessed Aug 2, 2010).

5. Kaiser Family Foundation.Issue Brief: The role of media in childhood obesity. Feb, 2004; (accessed Aug 2, 2010).

6. Kaiser Family Foundation.Percent of Children (10-17) who are Overweight or Obese, 2007. (accessed Aug 2, 2010).

7. Clarke PJ, O'Malley PM, Schulenberg JE, Johnston LD: Midlife Health and Socioeconomic Consequences of Persistent Overweight Across Early Adulthood: Findings From a National Survey of American Adults (1986-2008). Am J Epidemiol 2010;

8. CNN. No child left out of the dodgeball game? August, 2006; (accessed August 2, 2010).

Before employers consider dropping healthcare coverage, they may want to consider the large can of worms it will open. Entry 8 - 2010

2010-07-06T15:42:00.001-06:00

A few weeks ago, the media announced that several large companies (including AT&T, Verizon and John Deere) are considering the implications of dropping healthcare benefits altogether and “paying the penalty” that government plans to impose as a result of healthcare reform (1).

On the surface, it seems like a great deal.
The story reports that companies could save hundreds of millions of dollars by simply dropping healthcare coverage, paying the mandated penalty of $2000 per person and letting employees fend for themselves in the new insurance exchange system. Given that healthcare premiums average close to $10,000 per employee (more for a family), this alternative is a steal.

But of course it is not that simple. On the surface, paying the penalty sounds easy. However, for those already providing insurance, the rules depend on a) the household income of the employee and b) the percent of an employee’s income he or she is paying for premiums. For some low- or middle-income workers (below four-times the poverty level), employers will have to provide a voucher equivalent to the full premium value so that the employee can obtain similar coverage through the exchange system (2, 3). So much for savings.

The rules for high-income workers make dropping coverage SEEM attractive because there appears to be no penalty; they will be on their own to find coverage. But let’s consider what might happen if their employers drop coverage.

Sticker shock
Illustrated by the story in our previous blog, many highly paid workers who get insurance as a benefit often do not realize how much it costs. So, imagine thousands of workers suddenly thrust into a consumer market buying family insurance coverage---at a price of about $15,000 per year. It will be painfully obvious to employees---perhaps for the first time---just how much of their total compensation package has been in the form of healthcare premiums.

Not only will this create difficulty with employee relations, employers may feel pressure to ‘make employees whole’ by paying them for some of the value that was once contained in their insurance policy. Whether employees are fully aware today of the cost of healthcare, when faced with getting insurance on the open market they will quickly become aware. High performers will certainly (and understandably) ask their employers to maintain the same total compensation package. While the government will not mandate a voucher, employees will, in effect, demand its equivalent. Perhaps the most complicated step would be to calculate what that dollar amount is exactly. Consider these issues:

• Because employer-sponsored premiums are paid by pre-tax dollars but self-paid premiums are not, an equivalent policy will cost employers MORE in salary than it did as a benefit (on top of the penalty the employer will pay for not providing insurance). Dollar for dollar, it will cost an employer more to provide money for employee-purchased insurance than it does to provide insurance.

• Single employees whose employers subsidize the cost of family coverage will now be acutely aware that they receive considerably less compensation than their married colleagues who have children. Will they request equal amounts?

• Healthy employees may suddenly realize that they subsidize unhealthy choices made by their colleagues, opening their eyes to the cost of their risk pool.

• Because individual penalties for not having insurance are even smaller than employer penalties, some employees may decide that $10,000 or $15,000 is more valuable in cash and choose to take the penalty and risk of not having coverage.

Hindsight is just that. Seeing what could have been.
If these issues had been apparent to employees all along, maybe we wouldn’t be in this mess. Because employees have been protected from (and kept uninformed about) healthcare costs, they have remained ignorant about what inefficient and unnecessary care costs THEM. The longstanding illusion that “someone else” pays has kept the masses focused only on how much they can get, rather than carefully considering what they require or how care could be purchased and delivered more efficiently.

Healthcare has always been paid for through deductions in wages (or retirement benefits) and through corporate and individual taxes that pay for Medicare and Medicaid. Yet the same workers often believe that money spent on medical services comes from the pockets of government or employers, not their own.

We are left looking backward and wishing that all companies had been completely transparent about the real cost-shifting that occurs: reduced salary in exchange for bloated insurance policies. Instead, companies have protected employees from such issues because they are “too complicated for most employees to understand,” or would cause push-back and complaints.

Some of my economist friends argue that I am underestimating both employees (who really do understand the trade-off of benefits versus salary) and employers (who know full well that they must replace compensation spent on health insurance with greater salaries). My intent is not to insult anyone’s intelligence, but to remark on statements I see and hear. In both cases, when employees and employers give serious thought to these issues, I do not doubt their ability to comprehend what is happening or to make wise choices. However, (as seen in the previous blog), I think many employees remain unaware of the cost of healthcare because they are busy, the employer pays, and there are other issues in life to worry about. I also think that the complexity of reform has produced media stories suggesting that employers might have an “easy way out,” which is always an attention grabber. Thus, this is not about whether people CAN understand this, but whether complete information has been readily available to do so.

Awakening the giant.
All things considered, it appears that few employers would gain from dropping coverage completely (4). But sometimes I find myself wishing they would.. Everyone needs the dose of reality that only comes from hundreds of millions of employees writing checks ourselves or choosing between one product and another. One can’t help but wonder what plans might look like if employees had considered healthcare premiums “their own money” all along.

What will happen instead.
No one knows how the details of reform will shake out. But if employers find no advantage to opting out, they will have to find other ways to tackle cost in the new, tightly-limited environment. Under the premise of “better late than never,” it may be time to reveal to employees the size of the tradeoff employers are making on their behalf; how every dollar spent on healthcare is a dollar not available for other things (salary, bonuses, equipment, training); how much we spend on unnecessary care; how many medical issues are preventable; how systems can be designed to reward those who choose prudently and take care of themselves.

There are no government rules that can have as big an effect as an informed, motivated citizenship. Let’s start by letting people know what the system is costing them.

Why this matters: Sweeping statements and dire warnings in the media suggesting that reform will cause a mass exodus from employer-sponsored care are misleading. Pulling out would have its own signifcant implications. Still, if individuals are forced to purchase their own care, the impact of consumer pressure has the power to positively influence the cost of care in ways that government regulations never will.
________________________________________________________________________________

References
1. Tully, S.Documents reveal AT&T, Verizon, others, thought about dropping employer-sponsored benefits. May 6, 2010; (accessed Jul 5, 2010).

2. Hosssain, F. and Quealy, K.How the health care overhaul could affect you: major ways the overhaul will affect those who currently have health insurance and those who do not. Mar 21, 2010; (accessed Jul 5, 2010).

3. Keller Benefit Services.2010 Employer's Guide to Health Care Reform. Apr 8, 2010; (accessed Jul 5, 2010).

4. Geisel, J.Employers weigh costs of keeping, dropping health coverage. Apr 5, 2010; (accessed Jul 5, 2010).

Tell it like it is: why employees need to know what companies spend on healthcare. Entry 7 – 2010

2010-06-03T07:55:00.006-06:00

A friend of mine, Sam, has worked for a very large, Fortune 100 company for over 15 years. Recently he commented that there had been some changes to their health plan options that were not popular among employees. “You wouldn’t believe what the company did!” He then recounted how the company had issued an apology to employees for taking “too big a step, too fast.” Sitting in a small group of friends, we asked him what happened.

First, something you should know about Sam: he is a trained technology professional, known for doing his homework. In our circle of friends, we all “ask Sam” when we plan to make any significant purchase related to cars, travel, computers, sound systems, televisions, printers, you name it. Chances are, Sam is up on the latest brands, vendors, where to get a good price, and who to avoid. Sam is the definition of the smart, informed consumer.

It turns out that the “big” change involved increasing deductibles (to a whopping $750) and increasing single employees’ monthly contribution UP to $60 per month. As he described the changes, he clearly expected us to share his concern. However, he got the opposite reaction. Two people in our group are self-employed and fully paying for coverage. Several have deductibles above $2,000. By the time they all finished telling Sam to consider the generosity of his benefit package, his perspective had shifted.

Among Sam’s points (while defending himself) was that, “We have lower salaries because Acme Technology has such great benefits.” Actually, that may be true, but Sam has no evidence one way or another because he has never been told how much his benefit package costs.

Despite being one of the most informed consumers I know, in the case of healthcare benefits, Sam was clueless about price and mad about what he wasn’t getting. (It made me realize that he was probably not informed or cost-conscious in his use of care, either.)

Someone else’s money
Sam’s lack of awareness is a telling example of how differently we behave when (we believe we are) spending other people’s money. Sam is correct that he has TRADED wages for these benefits, but has never asked, ‘How much?’ He’s treating ‘company benefits’ as though they are paid for by the company, when, ironically, it is he that funds them right out of his own paycheck. Remember, total compensation is finite. When benefit costs increase, less money is available for salaries or bonuses.

It is critical to understand the degree to which healthcare costs are eroding available funds for take-home pay. According to the Milliman 2010 Medical Index (1), this year’s premium cost for a family of four will exceed $18,000. Employers will cover about $11,000 (more than half) of that on average (probably much more in Sam’s case!). Knowing Sam, he would definitely find a way to get a plan he likes for less than $18,000—if he understood that it was his own money.

The real problem here
Not knowing how the change was communicated and implemented, I can’t comment on whether I agree with the need for an apology or not. Nor can I comment on the types of plans that were offered, beyond our well-known bias toward high deductibles and funded health accounts.

Regardless, the change in plan is not the real problem; the problem is that Sam has no idea how much his health insurance costs.

Show me an employee uninformed about the cost of what he receives and I’ll show you an employee who believes he is entitled to more.

The biggest mistake his company is making isn’t benefit design, it’s keeping employees in the dark about the true cost of benefits and their connection to total compensation.

Tell it like it is
An employment contract is a business agreement between employees and their employer. Both parties need complete information to understand the terms of the exchange of work for pay. Specifically, employees should see a full statement at least once per year that summarizes how much the corporation is investing in their full compensation:

1. Wages

2. Bonuses

3. Profit sharing and stock options/awards

4. Paid-time-off value (vacation, sick leave, personal days)

5. Health insurance premiums, self and family

6. Disability and workers’ compensation insurance premiums

7. 401K matching and pension accrual

8. Health savings accounts

9. Taxes paid by the company (payroll, etc.)

10. Training and certification fees

Plus, it wouldn’t hurt to also share how much the company subsidizes programs, facilities, food, and other conveniences on a per-employee basis.

Without this context, it is almost impossible for employees to fully grasp the tradeoffs companies make when choosing (or revising) benefit options. Further, it promotes a more rational discussion about ways that companies can choose to allocate more money into employees’ hands (for example, into health savings accounts rather than premiums). Otherwise, employees simply notice their salary and undervalue all the “other stuff” the company buys for them.

Add to this situation another complexity: wages are taxed, but most benefits are not. Thus, the relative value of benefits is artificially inflated because those rewards are treated differently.

How much does all that “other stuff” cost?
The Bureau of Labor Statistics reported in March that the average portion of total compensation dedicated to salary and bonuses is about 71% (39K out of 55K), leaving 29% for “other” benefits. This average includes many small businesses, some of which do not provide health insurance or other benefits* (2).

However, we often see much higher expenditures in large, long-standing organizations. In one recent analysis we did for a company of roughly 20,000 employees, salary and bonus or overtime averaged about $85K, and all of the other benefits summed to another $55K, almost 40% of all compensation!

The most alarming thing about the $18,000 price tag published by Milliman last month is that it was just over $9,000 as recently as 2002 (3). This means that in less than a decade workers making a 50K salary have had to absorb an additional 9K (almost 20%) in their total compensation costs that is NOT going to salary.

Add to that a disturbing report last week that the portion of income coming from private industry wages (as opposed to investment income or government programs such as social security, food stamps, and unemployment) has reached an all-time low in U.S. history, just 42%. The report’s authors note that while an accelerated decline in recent years has resulted from government stimulus during the recession, the longer-term decline reflects how “private wages were eroding because of the substitution of health and pension benefits for taxable salaries” (4). See the figure at right. Knowing that government benefits come from taxes on private income, it becomes clear that the trend cannot continue.

What’s the right number?
There is no single formula for the right balance of wages and benefits (although readers know we would lean toward trading higher wages, bonuses and health accounts in place of richer benefits). However, every company can keep employees informed about total compensation. With today’s software packages for managing human resources and payroll, there is no excuse not to.

Why this matters: As healthcare costs continue their expected climb, companies will have to a) reduce the amount available for wages, or b) develop different strategies for reducing cost. Either option will require tradeoffs by workers; more dollars for healthcare means fewer dollars for something else. The only way to begin this conversation constructively is with cold hard facts and numbers. Rather than underestimating people like Sam and keeping them in the dark, help employees play an active role, or at least be informed participants in the decisions that companies will face. Without this as a starting place, companies may find themselves issuing a lot of apologies, even when trying to do what they believe is best for all.

___________________________________________________________________________
*note: National statistics did not include training, but did include most other categories.

References

1. Milliman, Inc.Milliman Medical Index 2010. May, 2010; (accessed June 2, 2010).

2. Bureau of Labor Statistics. Employer Costs for Employee Compensation. March 2010. (accessed June 2, 2010).

3. Milliman, Inc. Milliman Medical Index 2006. (accessed June 2, 2010).

4. Cauchon, D.Private pay shrinks to historic lows as gov't payouts rise. USA Today, May 26, 2010; (accessed June 2, 2010).

Redefining Wellness: Giving workers more control over their day and rewards for a job well done. Entry 6 - 2010

2010-05-02T11:15:00.003-06:00

Why do work bonuses influence exercise and smoking?
In this blog space, we have written many times about the connection between performance-based pay and positive outcomes, including higher productivity (1) and fewer absences (2). We’ve also seen examples where the structure of compensation seems to influence healthy behaviors (3). We often get questions about why or how pay and health might be connected.

Connecting a few more dots.

The standard answer: when good health translates into a greater opportunity for personal gain (incentive), workers value their health more. While our research shows this to be true from an economic perspective, I’ve always wondered: what is the psychological explanation? So, for those readers with a curious mind, a recent study connects the dots a little better.

Let’s start with Psych 101: Theory of Learned Helplessness.

If you took basic psychology, you probably remember the rat experiments where rodents were exposed to electric shocks on a random basis. For some rats, a particular behavior (e.g., touching a bar) would stop the shock. For others, there was nothing the rat could do to influence the occurrence of the shock, or how soon it stopped. The latter group learned that nothing they did mattered; they became passive and complacent (and perhaps fatalistic). Tests showed that rats with no way to control their environment actually changed brain chemistry and showed diminished response to subsequent stimuli. In other words, “Why try? Nothing I do matters anyway.”

It turns out that learned helplessness—the label applied to this phenomenon—happens when creatures have A) no control over when things happen to them (random shock) and B) no ability to change the outcome through actions they take (called contingency) (4). If the creature can, to some extent, control EITHER the timing or the intensity of the negative event, learned helplessness does not result. Believe it or not, the psychological pattern applies to people as well as rats.

What hopeless rats can teach us about the workplace.

In a study in 2006, researchers asked workers about the level of effort they put into their jobs and the extent to which they felt rewarded for their efforts (rewards included pay, recognition, and self-satisfaction) (5). Interestingly, workers who said they put high levels of effort into their work also reported putting effort into their health—they were less likely to smoke, be overweight, or inactive. However, when researchers created a ratio of effort to rewards, those who reported working the hardest but getting little reward actually had significantly higher rates of unhealthy habits. Workers experiencing the greatest imbalance in their efforts and rewards had a nearly 40% higher rate of multiple risk factors.

The authors hypothesize that when workers learn that their efforts at work do not result in positive outcomes, they develop a form of learned helplessness that extends to other parts of their lives. Feeling ineffective bleeds from one area to another.

Another recent study looked at changes in job control (control over job-related activities and tasks) to see if control correlated with changes in health behaviors (6). It did. Those who experienced an increase in job control over a four-year period were more likely to increase their exercise and report improved health status compared to those whose job control decreased. The reverse was NOT true—more exercise did not lead to higher job control four years later. Because this happened over time, it supports a causal connection between the two.

In summary:

1) Workers experiencing an increase in control over their job adopted healthy habits.

2) Workers who experience little connection between their effort and their rewards have worse health habits than those who work hard and see rewards.

Work and health come down to more than offering wellness programs. If you are like most people, you work because you want or need what you get in return. Sometimes we value the satisfaction that comes from personal accomplishment. Externally, we also value the rewards: pay, recognition, and promise of future opportunities. We work because we get something back.

But it appears that when efforts do not result in anticipated rewards, workers have a greater tendency not to care—at least when it comes to practicing healthy habits.

On the flip side, workers who are rewarded for their on-the-job efforts have a corresponding tendency to work to improve other aspects of life as well.

Applying these results to any workforce carries serious implications for workplace practices. Consider: is your workplace supporting personal control by giving people appropriate discretion over their work tasks? Are the people who get better results receiving better rewards? And perhaps as important: is there a clear pathway for those who are NOT doing well to improve and succeed?

If you cannot answer “yes” to these questions, your workplace may be detrimental to worker health, regardless of programs and messages encouraging healthy habits. In an environment where there is low control and high effort-reward imbalance, offering wellness programs or “coaching ”to correct lifestyle behavior is wasteful at best and perhaps even hypocritical.

Why this matters: The workplace has a powerful influence on behavior at and away from work. Whether business leaders realize it or not, that influence extends beyond specific work tasks into other aspects of life. By focusing on positive aspects of work, employers have a direct opportunity to improve individual health, without any wellness programs at all.

References

1. Lazear EP. Performance pay and productivity. Am Econ Rev 2000;90(5):1346-61.

2. Health as Human Capital Foundation.Aligning Incentives: What do bonuses have to do with reducing absence? More than you might think. Entry 2 - 2008. January 20, 2008; (accessed April 27, 2010).

3. Health as Human Capital Foundation. Money Matters. What do skinny people in big houses have to do with flu shots and bonus pay? Entry 11 - 2008. May 26, 2008; (accessed June 5, 2008).

4. Peterson C, Maier SF, Seligman MEP. Learned helplessness : a theory for the age of personal control. New York: Oxford University Press, 1993.

5. Kouvonen A, Kivimaki M, Virtanen M, Heponiemi T, Elovainio M, Pentti J, et al. Effort-reward imbalance at work and the co-occurrence of lifestyle risk factors: cross-sectional survey in a sample of 36,127 public sector employees. BMC Public Health 2006;6(Feb 7):24-35; (accessed Apri 29, 2010).

6. Smith P, Frank J, Bondy S, Mustard C. Do changes in job control predict differences in health status? Results from a longitudinal national survey of Canadians. Psychosom Med 2008 Jan;70(1):85-91; (accessed April 29, 2010).

Recess, breakfast and fewer bullies: why the keys to student achievement point the way to workforce engagement and productivity. Entry 5 - 2010.

2010-04-04T21:11:00.019-06:00

Human Capital (definition): the reservoir of capacity each human has to contribute to the well-being of his community, job and/or family. It is comprised of three types of assets: skills, health and motivation.

A belated thank-you note
Thirty or forty years after the fact, I’d like to thank teachers who made learning fun, coaches who converted lessons into games I wanted to play, and school officials who kept us safe and engaged. I was one of the lucky ones who learned a lot, came home both mentally and physically tired, and suffered mostly from typical stresses (like pop quizzes) and not fears of bodily harm. Best of all, I was surrounded by people who believed – and convinced me – that hard work would result in a rewarding life and career when I grew up.

In other words, without knowing it, my learning environment at school allowed me to develop strong human capital assets that continue to serve me well today.

Lots of kids aren’t so lucky.

According to a recent report called “Healthier Students are Better Learners” (1), many children in the U.S. face circumstances that limit their opportunity to develop and build human capital assets, be it skills, health, or motivation.

Below are seven issues the report’s authors found to interfere with learning in schools. These issues were selected because they: 1) Are relatively common, and disproportionately evident in poor, urban schools; 2) Have been proven to decrease school performance; 3) Have a strong potential to be improved with existing interventions or policies.

I find it interesting that the report labeled these HEALTH issues, with the author calling on public health and school officials to address all of them at once. By assigning them to the category of “health,” under the responsibility of health officials, we may find that we miss better opportunities to correct broader, fundamental issues.

I would argue there is an inevitable parallel between the issues challenging public education providers and those faced by corporate medical directors who later inherit those same students as workers. In the case of students or workers, are these just health issues, or do they simply show us the broader connection between health and human capital?

Each of these issues has a health-related component, but they were chosen because they interfered with the child’s opportunity to participate, learn, perform, or engage in the school environment. For instance, asthma affects learning because, when poorly controlled, it leads to absenteeism, poor sleep quality, lower motivation, and disconnectedness from classmates. (Does this sound similar to the challenges of worksite engagement?)

Bullying decreases motivation and increases depression, absenteeism, and dropout rates. Certainly this can fit within a broad definition of health, but fear of going to school causes a much more direct crisis in motivation and skill than it does in health. Fear certainly has a physical effect, but more importantly it reduces one’s ability to focus or concentrate on learning.

School achievement, like workplace achievement, results from many factors.

In this blog, regular readers have heard our argument many times. We can say that poor work performance is caused solely by health problems, which leads everyone to focus on health-related improvements only. Or, we can recognize the reverse: that high performance is the result of broader human capital success, where the environment promotes health alongside motivation and gaining the necessary skills to perform. Both approaches intend to improve health and raise achievement, but one addresses health to get to achievement, and the other directly addresses achievement, which leads individuals to value and protect their health.

Our sense is that there has to be a bigger, more obvious set of consequences to get anyone to improve; individuals need a reason to care. On the surface we see poor health and low performance, while an underlying absence of hope and optimism can magnify them both. Here are just a few workplace scenarios that parallel issues seen in schools. In workers, we see that:

Low job satisfaction leads to higher rates of absenteeism (2).
Two workers with the same illness or injury can have drastically different likelihoods of extended absence depending on whether they feel stressed and dissatisfied with their jobs (3).
Feeling a lack of support or recognition from one’s boss, or conflicts with co-workers, decrease work engagement (4).
Workers eligible for higher rewards rate health as more important to their careers (5).
People in communities that experience a significant increase in employment and earnings opportunities decrease their health risks and manage their health better than those in similar communities without employment opportunities (6).

One can easily find similarities if we substitute “school satisfaction” for job satisfaction, “teacher” for boss, and “fellow student” for co-worker.

Girls who envision a bright future may take extra steps to avoid pregnancy; parents who see a bright future for their kids may take extra steps to get them ready for learning; communities that consider student learning and well-being to be the key to our country’s future may work harder to keep school neighborhoods safe.

Students are workers too, only younger.

This school report about ‘improving health’ to solve the achievement gap makes me wonder if we can tackle health AND achievement from both directions. Certainly we should strive to provide all children with access to basic health and safety needs like vision correction and safe learning environments. But at the same time, each child needs a reason to care about coming to school and learning. Whether rewards are in the form of praise, gold stars, grades, favorite stories or a solid understanding of how it will change their futures, we must shape rewards in ways that give kids a reason to care, and to self-engage in their achievement. However, if kids don’t connect their effort at school with something they care about, it’s not likely they will care about their health either, and no health program can change that.

How do we make learning more important? No one has a complete answer. We do know that short-term feedback and rewards motivate us. Harvard educators are experimenting with pay-for-performance (which we support as a strong, aligned incentive in the work environment); kids in New York, Chicago and Washington DC are earning money for passing grades (short-term) and graduating (longer-term) (7). Results aren’t in yet, but perhaps dollars can be part of the equation; maybe they motivate students like they do older workers.

Thanks again.

Again I say thanks to the adults who convinced me that learning would bring rewards. When I did face bullies or peer pressure, I had strong reasons to choose (mostly) to show up and keep trying (instead of missing school or getting high). I had goals I wanted to achieve, and messing up wasn’t worth the risk of losing those.

If I hadn’t believed that effort matters, who knows what choices I would have made.

Why this matters: We all know health challenges affect human performance. But we often overlook how the work environment itself affects our interest in health. Even for children, especially by the time they reach middle school, connecting performance to rewards (ones that matter to the individual) makes all human capital assets more valuable. A child who knows that his skills, health, and motivation will help him reach his immediate and distant dreams is more likely to protect those assets.

References

1. Basch, C. E. Healthier Students Are Better Learners: A Missing Link in School Reforms to Close the Achievement Gap. Equity Matters: Research Review No. 6, Columbia University Teacher's College (accessed March 29, 2010).

2. Scott, K.D., Talylor, G. S. An Examination of conflicting findings on the relationship between job satisfaction and absenteeism: A meta-analysis. Academy of Management Journal. 1985;28(3): 599-612 (accessed April 4, 2010).

3. HHC Foundation. When a problem goes beyond illness, the solution must go beyond medicine. Entry 10 - 2009.

4. Wagner R., Hatter, J. 12: The Elements of Great Managing. New York: Gallup Press, 2006.

5. Brief report from the Health as Human Capital survey, 2007.

6. HHC Foundation. Do we have it backwards? Should we invest in health to get productivity? Or reward productivity to get better health? Entry 8 - 2009.

7. Education Innovation Laboratory. Harvard University (accessed March 29, 2010).

Implementing evidence-based care? Only if consumers demand it. Entry 4 - 2010.

2010-02-28T11:16:00.007-07:00

Three years ago, in January 2007, we wrote a blog (1) about a new “blockbuster” study, the findings of which should have revolutionized cardiology. Results showed that the common procedure of placing “stents” inside heart vessels (at a cost of $15,000 or more each) was no more effective for stable patients, and sometimes more harmful, than taking medication (2). In fact, death rates and repeat heart attacks were even higher in the stent alternative.

What a wonderful discovery for managing medical costs: spend less, get equal or better results, and cause less harm. A trifecta of benefits!

What has happened to the treatment of blocked arteries in the past three years since? Not much. After a brief dip in the rate of stent use, it appears cardiologists now use more stents than ever, ignoring credible evidence. Interviews suggest some cardiologists consider the study not applicable to their patients; or think stents offer quicker relief, which patients want; and fear that if they don’t use a stent, the patient will seek a different doctor (3). As one would expect, there are also debates about whether newer stents work better than those in the study. But that does not change the effectiveness of medication as a safe, effective alternative.

Who should be responsible for implementing this “evidence-based” treatment approach?
Doctors? Cardiologists make ten times more money by inserting a stent than by talking with a patient about medication (4), and The Wall Street Journal reports that the average cardiologist who put in stents has an annual income of $550,000. If their personal experience suggests that stents are safe and effective, what incentive do they have to stop using stents?

Insurers? Insurers don’t want to anger the physicians by reducing reimbursements for stents. As of today, very few insurers have adjusted their reimbursement rules regarding stents, preferring not to risk upsetting members or providers by “getting between patients and their doctors.” Most follow the lead of Medicare, which hasn’t adopted this evidence-based approach yet either.

Medicare? Absurdly, Medicare insurance is legally prevented from considering a treatment's benefits when deciding how much to pay doctors for doing a certain procedure (4), which leads us to a catch-22: Insurers wait for Medicare to act, but Medicare can’t impose this restriction.

Healthcare shouldn’t cost so much, on this we all agree. So it seems like a no-brainer to have credible evidence to guide our choices about medical care, and the proper value of medical services. For this purpose, $1.1billion of the 2009 Stimulus bill was assigned to conduct “comparative effectiveness trials” (4). Under this effort, a review board called the Federal Coordinating Council for Comparative Clinical Effectiveness Research will identify and disseminate evidence about what treatments work best and are less costly.

Sounds like a great idea, right? In theory, providers better understand which medical procedures are safer and cost-effective and adjust their treatment accordingly, insurers change their reimbursement rates to encourage and reward effective care, and patients achieve better outcomes. Right?

Not so fast.
If credible scientific answers (such as the findings on heart stents) are ignored by providers, insurance AND the same government who sponsors the research in the first place, where do we go for rational decisions?

Rereading the blog from 2007, we concluded that: “As long as cardiovascular care centers make (a lot) more money doing angioplasties (inserting stents) than giving medications—and as long as patients do not pay a portion of the excess cost of a more expensive option—it will be difficult to move medical practice to optimal rates of angioplasty, or any other high-tech procedure.”

It is painfully obvious that none of the major players in healthcare can enforce good evidence; not doctors, not hospitals, not insurers, not government, nor the scientists themselves. And, under normal circumstances—with no financial stake and limited information about price, quality or risk—neither can patients.

Remember, this is one example among thousands and thousands of medical choices. If no stakeholder has an incentive to choose based on effectiveness AND price, it is no wonder that costs continue to grow as they do.

Only one group has the incentive to demand evidence-based care and bring down costs.
Empowered patients are perhaps the only group with the ability to influence and demand evidence-based care. Let’s define them as consumers: patients who spend a portion of their own money for care, and who have access to unbiased information about their options. They are the ONLY party in the equation that can balance the value of expensive-but-instant care against the value of less-expensive, equally-effective but-longer-term options. It’s important to remember that this power to influence care only exists when consumers have both a financial AND a functional stake in the matter, combined with access to information to make good decisions.

An experiment will begin later this year in one health plan where stents will only be covered for non-emergency cases if needed after patients have successfully completed 12 weeks of medication treatment (5). Unfortunately, because patients are not cost-sensitive and physicians have incomes at risk, I fear the most likely result is a media story about unfair rationing or health plans meddling in the sacred doctor-patient relationship. This time, I hope I am wrong.

Why this matters: If consumers paid a higher portion of the cost for non-evidence-based options, the most cost-effective treatments would quickly become preferred by all parties. Providers would have to compete on value and outcomes, rather than piling on the most invasive and expensive options regardless of cost. In the meantime, one can only hope that the health plans that DO promote evidence-based medicine through their reimbursement rules get positive recognition for doing so.
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References
1. Health as Human Capital Foundation. When the Most Expensive Option isn’t the Best Option. Entry 3 - 2007 . 2007 Jan 28: (accessed February 25, 2010).

2. Hochman, J. S.; Lamas, G. A.; Buller, C. E.; Dzavik, V. ; Reynolds, H. R.; et.al. Coronary intervention for persistent occlusion after myocardial infarction. N Engl J Med. 2006 Dec 7; 355(23):2395-407.

3. Joffe-Walt, C. Doctors Disagree About Effectiveness, Cost Of Stents. Kaiser Health News; 2009 Aug 27: (accessed February 25, 2010).

4. Walker, E. P. Stimulus Bill Gives $1.1 Billion for Comparative Effectiveness Research. MedPage Today; 2009 Feb 19: (accessed February 25, 2010).

5. Winstein, K. J. A Simple Health-Care Fix Fizzles Out. The Wall Street Journal; 2010 Feb 11: (accessed February 25, 2010).

Why savings estimates for improved health miss the big picture. Entry 3 – 2010

2010-01-31T14:23:00.001-07:00

To see wonderful illustrations of why the “good health = lower cost” equation is an oversimplification of reality, take a peek at the contents of the past two issues of the Journal of Occupational and Environment Medicine.

First, there are several articles reinforcing the widely-accepted direct link between health status and the cost of healthcare.

Four studies show that people WITH a health condition have higher costs than those WITHOUT the condition. Patients with diabetes, fibromyalgia, low back pain and poor sleep, have higher costs and/or absences than patients and workers without those conditions (1, 2, 3, 4).

But that’s just the tip of the iceberg. A potpourri of other studies reminds us how complex the topic really is:

 REDUCING a significant risk factor did not produce lower costs or absences over a two-year period. A successful weight-loss campaign did not produce any cost savings in the next two years following the study, leading the authors to caution against expectations of a positive short-term ROI (5).

 The length of absence due to an injury depends largely on the doctor. This study found that 3.8% of physicians in Louisiana accounted for 72% of all workers’ compensation costs (6). Patients who chose—or happened to have treatment from—“cost intensive physicians” could expect to have five times higher costs, even after adjusting for age, sex, medical condition, and other factors. The remaining 96% of doctors seeing workers’ compensation cases accounted for only 28% of costs.

 Individual beliefs affect the number of absences for back pain. Workers who have high levels of fear-avoidance beliefs (FAB), beliefs that work will lead to pain, are absent more than workers with similar pain severity but low FAB (3).

 Health improvement alone does not improve return-to-work following extended absence. European researchers found that improved health did not guarantee return to work, especially when certain psychosocial factors—like depression and low self-efficacy— and work factors were present (7).

 Companies which self-insure their workers’ compensation benefit have fewer employees who are injured. After controlling for a large variety of other factors, authors concluded that companies that directly manage their experience rating invest more effectively in prevention and reduce injury rates (8).

Putting it all together, we see that—yes—having a condition generally makes a person more expensive than others without the condition. But, changing one’s health condition (such as obesity) does not easily translate to healthcare cost or absence reduction. Indeed health improvement may not save money or result in someone coming back to work if a) they believe their work is harmful, b) they dislike or have conflict at work, or c) they choose a doctor who prefers longer, more expensive treatments. Finally, a company’s commitment to prevention and safety today is driven in part by the financial risk it carries for injuries tomorrow.

How meaningful are studies that attribute costs and absences to illnesses without consideration for these other important factors?

One can’t help but question what we are really measuring when we attribute costs (9) and absences (10) to a medical “cause” such as back pain. What does the cost of illness really mean? Given the complexity, we know the cost isn’t just about necessary medical care but also about the care and lost time that a person:

• believes he needs,
• is afraid he needs,
• lacks the confidence to manage himself,
• has been advised by his specific providers he should get,
• uses instead of facing difficulties at work,
• has incentive to consume,
• hasn’t prevented himself from needing, or
• seeks in conjunction with related issues (including mental health).

If all of the components included in this list define the “true cost,” it is no wonder that we can’t attribute “savings” to a simple reduction in any one condition or its severity. These studies clearly tell us that health improvement is only meaningful in a broader context of life, work, treatment recommendations, and personal beliefs. Improving health is a worthy goal in itself—but for a variety of reasons nicely illustrated in these recent Journal issues—cost savings will not be a certain result.

Why this matters: When we oversimplify the problem of health costs, we risk being disappointed when investments in health programs don’t bring the savings we expect. While there is no shortage of calls for programs that promote “health improvement,” that only gets us so far toward any goal of cost containment or absence reduction. Therefore, the right approach must reach beyond a condition-specific focus, and provide personal expertise, aligned incentives, education, and support to the ‘whole’ person and her or his family.

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References

1. Durden, E. D.; Alemayehu, B.; Bouchard, J. R.; Chu, B. C., and Aagren, M. Direct health care costs of patients with type 2 diabetes within a privately insured employed population, 2000 and 2005. J Occup Environ Med. 2009 Dec; 51(12):1460-5.

2. Kleinman, N.; Harnett, J.; Melkonian, A.; Lynch, W.; Kaplan-Machlis, B., and Silverman, S. L. Burden of fibromyalgia and comparisons with osteoarthritis in the workforce. J Occup Environ Med. 2009 Dec; 51(12):1384-93.

3. Jensen, J. N.; Karpatschof, B.; Labriola, M., and Albertsen, K. Do fear-avoidance beliefs play a role on the association between low back pain and sickness absence? A prospective cohort study among female health care workers. J Occup Environ Med. 2010 Jan; 52(1):85-90.

4. Rosekind, M. R.; Gregory, K. B.; Mallis, M. M.; Brandt, S. L.; Seal, B., and Lerner, D. The cost of poor sleep: workplace productivity loss and associated costs. J Occup Environ Med. 2010 Jan; 52(1):91-8.

5. Finkelstein, E. A.; Linnan, L. A.; Tate, D. F., and Leese, P. J. A longitudinal study on the relationship between weight loss, medical expenditures, and absenteeism among overweight employees in the WAY to Health study. J Occup Environ Med. 2009 Dec; 51(12):1367-73.

6. Bernacki, E. J.; Tao, X., and Yuspeh, L. The impact of cost intensive physicians on workers' compensation. J Occup Environ Med. 2010 Jan; 52(1):22-8.

7. D'Amato, A. and Zijlstra, F. Toward a climate for work resumption: the nonmedical determinants of return to work. J Occup Environ Med. 2010 Jan; 52(1):67-80.

8. Asfaw, A. and Pana-Cryan, R. The impact of self-insuring for workers' compensation on the incidence rates of worker injury and illness. J Occup Environ Med. 2009 Dec; 51(12):1466-73.

9. Martin, B. I.; Deyo, R. A.; Mirza, S. K.; Turner, J. A.; Comstock, B. A.; Hollingworth, W., and Sullivan, S. D. Expenditures and health status among adults with back and neck problems. JAMA. 2008 Feb 13; 299(6):656-64.

10. Guo, H. R.; Tanaka, S.; Halperin, W. E., and Cameron, L. L. Back pain prevalence in US industry and estimates of lost workdays. Am J Public Health. 1999 Jul; 89(7):1029-35.

Seeing is believing: the power of consumer-driven healthcare innovation. Entry 2 –2010

2010-01-17T09:37:00.010-07:00

Now I see!

Globally, 150 million people have treatable vision problems that remain uncorrected. Researchers estimate a loss of productive effort amounting to $269 billion per year from education and work these individuals are prevented from achieving (1). That number of people is equivalent to half of our nation’s population being prevented from reading in school, seeing the buttons on a calculator, or having the ability to safely drive a vehicle; a huge and avoidable loss.

In our last blog, we discussed what health innovation might look like in a consumer-oriented market. Most of the examples we used were hypothetical, comparing technological advances in consumer goods to what has not happened in delivery of healthcare. Today, we look at a remarkable example of innovation—an inexpensive solution to recovering human capital in the developing world through access to corrective eyewear.

When it comes to health, rarely are we able to carefully quantify the degree of physical dysfunction and then fix it in a direct, measurable way. But there is an unusual exception: sight.

Fixing vision seems easy enough.
On the surface, it seems straightforward to simply send lots of good eyewear to developing countries. However, because each set of imperfect eyes has unique flaws and needs a slightly different type of adjustment, one quickly learns that our U.S. approach to hi-tech equipment, trained medical personnel, and a wall display of fashionable eyewear isn’t economically feasible (or available) in remote villages in places like Bangladesh.

What we need is ingenuity.
What the rest of the world needs is completely different: a cheap, mass-produced product that can be adjusted, by untrained users, to correct a wide variety of vision problems.

While the race is still on, apparently three European groups are well on their way to meeting that seemingly impossible goal, each producing self-adjustable glasses that will cost less than $2 per pair when mass-produced (2). One type uses an injectable fluid that changes the internal shape of lenses (3) as more fluid is added. Another uses two lenses that change correction as they slide together or apart (4). The second idea was actually envisioned by a Nobel prize-winning American physicist in the 1960s but did not become possible to manufacture until recently.

Makers of these cheap, self-adjustable spectacles anticipate distributing 100 million pairs per year by 2020, with the ability to correct about 80% of all common vision problems (3). Here, science plus ingenuity responded to existing economic pressures in developing countries to literally change the future for hundreds of millions of people.

In the U.S., most of us can get access to corrective eyeglasses.
A large number of health plans and Medicaid systems cover annual eye exams and glasses. Thus, in the U.S. we would probably have little demand for self-adjusting glasses which, admittedly, are not especially stylish. Logically, the reason we have not invented such glasses here is based on what economists call the “theory of price-induced technological change” (5). Optimal technology always conserves the high-priced factors of production (here, the equipment and expertise) and reduces the actual mechanics of production to the basic, necessary elements needed to make a product.

Thus, because of the price subsidy in the U.S., technologies do not evolve to invent a “poor-man’s” version of prescription glasses. But in countries where people can afford neither the doctors nor the one-by-one-produced glasses, such innovation will occur. Innovation is coming from those who see a demand for inexpensive, effective glasses and are willing to make a product that will fill that need.

So, if the majority of us had to pay for our eyewear directly, (rather than having the service paid for by insurance), would a similar set of products have evolved here already? Today, we can order glasses online for under $10 (6), but we need a doctor’s prescription (and visit) to order the right pair.

From an economic perspective, solutions evolve to fit price and available technology. So any price subsidy, by insurers or others, will dictate what solutions emerge. In the U.S. , despite having some of the most innovative thinkers in the world, there is limited incentive to invent cheaper solutions because someone else pays for the ones we already have.

One can only wonder…if we could order and adjust our own glasses, how might that change the business and practice of eye care? Would we shop like we do now for cheap reading glasses? And which organizations would support or oppose such options? Would we be encouraged by entrepreneurs who would inevitably emerge to take matters into our own hands? Or would we be discouraged from doing so with messages about what damage we might cause ourselves by not seeking professional advice?

On the other hand, if consumers were paying with their own money, would they decide that optometrist services are not only worth the visit fee, but that these highly-trained medical professionals can also provide other kinds of important primary care beyond the practice boundaries of vision care? That’s the beauty of a system that responds to market pressure…it can become more efficient and less costly according to consumer demand.

Unfortunately, a lot of revenue and business would be at stake, making me wonder if our current system would embrace a solution that allowed such deviations from the “usual.” Are we ready to encourage individuals to self-correct their vision without a doctor’s input, or choose a favorite, qualified doctor regardless of which category he or she falls within?

I don’t know about anyone else, but innovations like self-adjusting lenses remind me that dramatic, inexpensive improvements in healthcare (and human capital) are possible in environments that encourage innovation. It worries me to think that the U.S. has created its own circumstances that reduce good ‘ol American ingenuity (see this report that places us eighth most innovative in the world (7)). I’m hopeful we can change that; we just need to remove the barriers to innovation and harness the power of a (paying) consumer market.

Why this is important: American innovation has brought us countless amazing products that affordably improve food, entertainment, energy and technology. In U.S. healthcare, amazing new technologies are released (digital scanners, artificial joints, etc.), but rarely do they reduce cost. While today’s reform efforts focus on covering every citizen with our current method of insurance, we hear no mention of one of its downsides: the lack of incentive to do things better at a lower cost.

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References

1. Smith, T. S.; Frick, K. D.; Holden, B. A.; Fricke, T. R., and Naidoo, K. S. Potential lost productivity resulting from the global burden of uncorrected refractive error. Bull World Health Organ. 2009 Jun; 87(6):431-7; (accessed January 15, 2010)

2.. Heingartner, D. Better vision for the world, on a budget. The New York Times. 2010 Jan 1; Global Business; (accessed January 15, 2010).

3. Addley, E. Inventor's 2020 vision: to help 1bn of the world's poorest see better. The Guardian. 2008 Dec 22; (accessed January 15, 2010).

4. U-Specs. VU University Medical Center, Amsterdam, The Netherlands; (accessed January 15, 2010).

5. Hicks, J.R. The Theory of Wages, Macmillan, London, 1932.

6. BestPrice Glasses.com (accessed January 15, 2010).

7. Rediff Business Desk. World's 10 most innovative nations. 2009 Aug 4; (accessed January 15, 2010).

If only! Imagine if healthcare were as innovative as other industries. Entry 1 - 2010

2010-01-03T20:52:00.007-07:00

Let’s say you are hiring someone to fill a high-level position in one of your offices across town. You find a great candidate and offer him a job. He says “Sure, and I expect a large salary. But I will not communicate with you by email or voice mail. You have to come and see me in person if you need anything. ” Sound reasonable? Of course not.

But this is what usually happens in healthcare. Although exceptions are becoming more common, as of last year only 36% of doctors had ever used email to communicate with patients (1), and some ask patients to pay a monthly fee for the privilege (2).

Why is that? Mostly because our healthcare system has evolved with a third party (insurance or employers or government) deciding what they will pay for, and paying within a structure that does not encourage efficiency or cost-effectiveness. Unlike with most products and services, consumers do not play a significant role in determining price or value. The added convenience (for consumers) of email, gets outweighed by fear of the potential for fraud or misuse (by insurers).

Consider technological advancement in non-medical fields.
It seems like technological innovation is accelerating everywhere we look. My cell phone shows me where I am and gives me directions where I wish to go. My car talks to me, my e-book can beam me today’s New York Times while I’m sitting in a lawn chair. Last month I got a memory stick as a give-away that has more storage capacity than a main-frame hard drive that cost almost $50K not THAT long ago.

We carry our favorite music, TV shows and reading material with us in a tiny machine the size of a pack of gum. Credit cards are fingerprint-protected, and Blackberries download our boarding passes. We get automated reminders when movies are released, our flight is late, our fuel tank is low, or a financial transaction has occurred. Amazing systems warn air traffic controllers about potential collisions, track the pathway of thousands of pieces of dangerous space debris, and even analyze flaws in my golf swing. We can get together to watch presentations or play virtual games with virtual people in real time, without even being on the same continent.

Now, let’s talk about your everyday visit to the doctor.
If you had an appointment lately, you probably experienced the usual 1950s scenario: fill in a written medical history for the 100th time in your life, watch it get placed in a folder where it will never be seen (or easily available if you move and switch doctors); answer verbal questions with the same answers you just wrote down to a nurse and then again to a doctor; revisit some issues you are certain you talked about before, walk away with—if you are fortunate—a feeling that you were heard, and possibly a written prescription; stop at a small window where they take an insurance card (again) and hand you a piece of paper with a date written for your next appointment, which obviously will not be automatically scheduled in your Blackberry.

Because we are so accustomed to in-person healthcare, most of us do not give it a second thought. But the contrast is dramatic. Compared to all of the automation in the rest of our lives, healthcare technology borders on the ridiculous. How a profession that starts with extremely bright people ends up with service delivery that lags 50 years behind is amazing, and not in a good way.

The problem is captured with a basic business equation: finance dictates form; form dictates function. Simply put, how we pay for healthcare (and who sets prices) determines what healthcare looks like.

Specifically:

Someone other than the patient (employer, government) pays for services. The “worth” of any service is set by a panel of experts who set price not on effectiveness, but on the complexity of the service and the required training of the practitioner.
Third-parties pay for volume rather than efficiency (doctors get paid more for more visits).
Third-parties pay doctors more for DOING things than communicating with patients, and more for SEEING patients in person than remotely.
A doctor who discovers a cheaper, more efficient way to deliver care (i.e., therapy instead of surgery) will earn less.

It shouldn’t surprise us that medical providers rarely lead the charge to becoming more efficient, less expensive, or more technologically advanced. Their real customers (insurers and government) actually pay them NOT to be. It is not an accident that doctors who guarantee their price up front (meaning capitated HMO plans) actually use more communications and electronic record technology because they have a personal stake in efficiency. I can’t help but imagine what would be possible today if only we had decided in the 1940s that people would pay directly for their healthcare the way we do for every other service. If consumers had voted with their wallets and their wellbeing over the past 70 years, would healthcare technology match other industries?

Just imagine: a private, secure health record that you carry in your wallet; lab results and testing images stored on your i-medical pod; an array of qualified consultants—not just doctors—who consult online; accurate but inexpensive diagnostic tools; competition among proven treatments at a lower cost; tiny scanners that detect problems more accurately at a fraction of the cost and hassle; home testing kits; and, best of all, personalized, convenient care in the location you want at a time that works for you.

Sound impossible in the medical field? It’s not. Just look at the advancements we’ve seen in cases where people pay directly for healthcare services that are not covered by insurance. The technology driving cosmetic surgery and LASIK eye procedures is cutting edge and prices for both have decreased in recent years. Both industries actually guarantee results ‘or your money back.’ Have you ever heard such an offer from your doctor? Today, the danger that medical costs will increase and technology will stagnate is nearly guaranteed. Impending national healthcare legislation solidifies the control of third-party payers, shelters patients from direct payment, and eliminates the incentives for technology innovation that come from consumer-driven markets. And as we talked about a year ago (3), these underlying economic incentives—intended to protect people—actually make consumers less engaged and more at risk of poor outcomes.

If only we had a chance to spend healthcare dollars that we truly controlled for ourselves, we might actually get the healthcare services and technology that matter most at a lower cost.

Why this matters: The old adage, finance dictates form, form dictates function, has never been truer than in healthcare. Any attempt to improve healthcare services and outcomes while ignoring the influence of finance is lost, and so is the likelihood that we’ll see the technology advancements proven possible in every other industry. If we want innovation, we have to give consumers real power to drive change. This means funding health savings accounts where consumers vote with their checkbooks, and competition among providers to produce better health outcomes at a fixed price. THAT kind of economic incentive is what drives innovation in almost every other industry: consumers wanting better service, for less money.

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References

1. Manhattan Research. What Percentage of Physicians Communicate Online With Patients? 2008 Jul 3. (accessed December 31, 2009).

2. Gumz, J. Santa Cruz doctors offer patients e-mail privileges for a fee. Santa Cruz Sentinel; 2009 Mar 29. (accessed December 31, 2009)

3. Health as Human Capital Foundation. Third-party Payers of Gourmet Food: It Sounds Good, But What About the Basics We All Need? Entry 1 - 2009. 2009 Jan 4. (accessed January 16, 2009).

Getting real: the reasons companies rarely find actual dollar savings with health-improvement programs. Entry 26 –2009

2009-12-21T06:59:00.007-07:00

Today’s blog is a response to benefits managers and corporate medical directors who have (and will in the future) exclaimed “these programs were supposed to save us money, so why are your data saying they don’t? Is there something wrong with your analysis?”

While I am formally trained in Evaluation Methodology, I recognize that only a few kindred spirits share my passion for this field. This blog doesn’t require that you LOVE evaluation, but it is a little more detailed than usual, because it seems important to explain why our direct evaluations so infrequently show (expected) measurable savings from health improvement programs. There are three overarching reasons, each of which I will highlight briefly.

1. Healthcare costs are not a good measure of health status.
2. We use real numbers rather than projections.
3. Too often, companies ignore the powerful influence of business practices.

Reason One. Healthcare costs are a lousy measure of health status, and an indicator of many other things.

While in general healthier people cost less, healthcare costs at the individual level are a very imprecise measure of health status. They are an even worse measure of risky health behaviors (which indicate a future likelihood of health problems). In the 1990s, research into an area of “demand management” documented that level of morbidity (illness) was only one determinant of how people use healthcare (1). The other three areas were:

a. Perceived need for care. This includes all the beliefs people have about what might be wrong with them, how serious the illness might be, what they perceive about the value of medical expertise, and how uncomfortable they are with uncertainty. Two people with the same exact symptoms may react in vastly different ways, affecting the amount of care they use (1, 2, 3).

b. Patient preferences. This includes differences in a person’s primary goals and preferences regarding what he or she wants to achieve by getting treatment. Again, a person seeking a cure at any cost will consume healthcare differently than a person wanting to manage pain and maximize functionality, for example(1, 2, 3)

c. Non-health motives. As we often discuss in this blog (and describe in more detail below), economic, social and occupational factors influence how and why people use health care (1, 2, 3).
So, if you are not seeing a correlation between health factors and health costs, there are many potential reasons why:

Reason Two. We use actual data rather than the usual method of projecting savings from other sources.
When we conduct evaluations in our firm, we analyze actual data. Conversely, many vendors project estimated savings using equations that rely on other metrics. Most projections used by health vendors are attributed to a few studies that show either how the number of current risks correlate to the current costs, or, in some cases, how changes in the number of risks are correlated with changes in cost. However, there are flaws in this logic:

a. Many equations presume that all risks are of equal value. When a company’s employees eats a few more servings of fruits and vegetables, or wears their seatbelts more often, that will not have the same effect as other factors such as significant weight loss. We have known for years that some risks have more value than others (4).

b. Some health “risks” in the most popular equations are actually indicators of current health status. The most concrete examples are “number of sick days,” and “number of chronic conditions.” In reality, these factors are not “risks,” they only tell us that these folks are sicker today; if you are sicker today you will cost more today. Of course those are predictive of costs.

c. Risks that require medical treatments today (i.e., high blood pressure and high cholesterol) are associated with HIGHER costs. This means that health care costs will go up when these risks are treated.

d. When we look at health-program participation, more often than not, those who sign up are less costly than those who don’t (5). Because average costs are predominantly driven by the most expensive few (6), it is difficult to achieve an overall effect with small changes in people who are already low cost.

So again, if a company has documented some changes in risks, it is important to look carefully at the types of risks that are being measured before presuming those changes in risk will translate into cost savings.

Reason Three: Too often, companies ignore the powerful influence of business practices.
Any misalignment in incentives to use benefits will overshadow small health status changes. Examples we have seen:

a. People in a health plan with a very small deductible will use a lot more care than people in less-rich plans (7). This excess use may create too much “noise” to find any small changes in cost.

b. Employees experiencing financial pressure and job uncertainty will experience a spike in medical claims, disability leave and workers’ compensation events as employees use services in advance of a concern about layoffs (8).

c. Employees with low job satisfaction/engagement will exhibit higher levels of absenteeism and use of medical services unrelated to traditional health risks and health status (9).

d. As we showed recently, realignment of business practices can have as much as three or four times as much of an impact on healthcare and absence costs than interventions focused on health status (10). As we mentioned above, the relationship between health risks and costs can be found when “other things are equal;” in most cases they are not.

Add to all these: a steady inflation in the cost of healthcare, changes in health plan design, the lack of a true comparison group, and many other factors…. and we find ourselves looking for the proverbial needle-in-a-haystack.

Just to be clear about our position, it will be very unlikely that real data will match projected savings unless all other factors are accounted for. And employers must be very cautious about over-projecting what effect health status or risks can have on medical claims costs.

The reality is that our industry has overstated the ability to create and detect medical cost savings from health-improvement efforts.

Some may misinterpret this blog to mean that I believe the underlying science regarding health risks is wrong. Not so. I have no doubt that if a large portion of people in our society achieved and maintained a healthy weight, did not use tobacco, and exercised regularly, among other things, there would be a dramatic reduction in many chronic illnesses and the costs associated with treating them.

However, that connection does not translate into a foregone conclusion that employers making an investment in health programs, while ignoring all other business practices, will see it translate into lower healthcare and absence costs; nor that all changes in any defined health “risk” will result in lower healthcare costs; nor that all health improvement programs improve health. There are simply too many other factors involved.

So, what should employers do with projections and data that don’t match? In my humble opinion, there needs to be an entirely different conversation:

1. If your goal is to reduce healthcare costs, the top priority should be to realign all business practices to reward high performance and good health, and encourage people to become better healthcare consumers.

2. If your goal is to encourage healthier behaviors, FIRST realign incentives (to make health matter more), SECOND examine your company’s practices to take an honest look at whether the work environment supports people’s efforts to be healthy. If the company cannot honestly support a reasonable work schedule (are healthy sleep habits, exercise, and family time even possible?), flexibility and access to preventive services, and a competitive wage, then health improvement efforts are disingenuous. THEN FINALLY—if your incentives and your business practices and environment are supportive—make investments and track improvement in key behaviors themselves, not estimated projections in savings those behavior changes MIGHT produce. The big three risks that matter: have people achieved a healthy weight, started exercising, and reduced their use of tobacco? Hold vendors accountable (or better yet, reward individuals!) for improving those three things. If people achieve these, you are truly making a difference.

Why this matters: Employers invest a great deal in health programs for their employees and expect to see cost savings as a result. Yet, there are so many reasons changes in health risks WON’T affect health/absence costs, it is very unlikely that those savings will be detected in actual data. Instead of relying on “estimated” savings, it would be wise for employers to reassess their goals and choose interventions and metrics that have a higher likelihood of solving their cost problems and measuring actual health improvement.
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References

1. Self-Care Institute. Demand Management Handbook. Washington, DC: Partnership for Prevention; 1996.

2. Lynch, W. D., D. W. Edington, and A. Johnson. 1996. Predicting the demand for healthcare. Healthc Forum J 39(1): 20-24.

3. Lynch, W. D., and D. M. Vickery. 1993. The potential impact of health promotion on health care utilization: An introduction to demand management. Am J Health Promot 8(2): 87-92.

4. Milliman & Robertson, Inc., and Chrysler Corporation. 1995. Health risks and behavior; the impact on medical costs.

5. Lynch, Wendy D., Lynn A. Gilfillan, Carol Jennett, and Joe McGloin. 1993. Health risks and health insurance claims costs: Results for health hazard appraisal responders and nonresponders. J Occup Med 35(1): 28-33.

6. What the mean does and doesn’t mean—when average isn’t normal. http://hhcf.blogspot.com/2005/11/what-mean-does-and-doesnt-meanwhen.html

7. J. P. Newhouse’s Free for all? Lessons from the RAND Health Insurance Experiment. Cambridge, Mass.: Harvard University Press, 1993.

8. Getting value from health benefits: Use them or lose them. http://hhcf.blogspot.com/2007/08/getting-value-from-health-benefits-use.html

9. Unpublished data, Health as Human Capital Foundation

10. Part IV: Business Practices—A major, modifiable driver of healthcare costs. http://hhcf.blogspot.com/2009/10/part-iv-business-practicesa-major.html

Reduce absence, improve productivity: aligned incentives are a simple formula. Entry 25, 2009.

2009-12-06T19:54:00.021-07:00

You could say this is a story of a group of underdogs who become company heroes. Or you could say it is a story of a smart business manager. Either way, it is a success story where a once-disappointing department improved productivity by over 35% and dropped absenteeism by an amazing 70%. How? Aligned incentives. And it all started with a dinner conversation…

Let’s start at the beginning.
Over their evening meal, one of my colleagues was talking with her husband, “Chris,” about work. His company sells medical supplies, and he had recently been assigned new responsibility for several departments including accounts receivable (AR). Chris soon learned that AR was considered the “problem” department, often blamed for less-than-adequate collection rates and perceived as poor performers overall. Unplanned absences were all too common. Chris saw that AR team members received very little feedback, and what they did hear was uniformly negative and critical. Chris worried that the few high performers he had would not last long in such a difficult environment.

At this point in the conversation, the couple began brainstorming about what the health as human capital paradigm would suggest in this situation. The most important question: Were incentives aligned? The answer: Not at all. Regardless of how well or poorly the AR team members performed, their pay and benefits stayed the same over time. Outstanding performance not only went unrecognized, it was lost in lackluster group totals. The team shared no rewards when things went well, and no accountability when they didn’t.

So, with nothing to lose, Chris decided to align incentives.
Looking over their past year’s performance, Chris established a standard, achievable level of collections, and two higher levels: high and exceptional. He sat down with the team and explained that AR staff would receive immediate feedback about collection rates, and that rates exceeding high or exceptional levels would result in bonuses at the end of each month. In all, staff members could earn an extra 12% to 15% of their base wage if their collection rates met the highest goal levels.

How soon did behavior change? Day one.
Here were the instant effects:

Staff members immediately became more aware of their own performance levels and tracked performance daily.
Two poor performers, sensing the change in environment, quit.
Attitude and energy levels shifted positively.

But what were the business results?
Collections increased from an average of $1M per month to $1.35M per month. The amount of debt that remained uncollected each month decreased from almost 12% to 3%. The gain to the organization resulted in a spike in profitability, leading senior leadership to notice and inquire “what happened?” For the first time, AR department members received positive recognition for their contributions to business success.

How do shared rewards affect benefits utilization?
The side effect of shared rewards is often a shared sense of accountability. Once employees became eligible for performance-based bonuses, they also became acutely aware that days away from work would affect their own bottom line. Missing multiple days of work now carried a greater economic weight for everyone—the company and the individual.

The effect on absenteeism is shown here: the average number of unexpected absences per month for a team of 13 people went from 19 days (1.5 per person each month) to 5 days (fewer than .5 per person), almost a 75% reduction. (Click on the graph to make it larger)

This occurred without a change in absence policy, or an intervention to improve employee health. It occurred because being at work mattered more. Here’s the formula:

Intervention:: Make health and attendance matter more by rewarding performance.
Result:: Lower absenteeism, higher productivity, retention of three exceptionally high performers.

Why this matters: Incentives drive behavior. When our research links bonus compensation to benefits utilization, we often hear rebuttals about how higher-paid and higher-educated people are healthier. Here, we see a natural experiment where rewards for performance reduced unscheduled absences by over 70%—with no health intervention. Examples like these are hard to argue with.

Openness to new ideas: the only cure then and now. Entry 24, 2009

2009-11-22T10:25:00.016-07:00

It is not hard to learn more. What is hard is to unlearn when you discover yourself wrong (1). ~Martin H. Fischer

In the frightening time of the Black Plague, many held strong beliefs about how the disease spread. Clergy claimed it was a punishment directly from God; Hippocratic physicians said it was an imbalance of the body’s four humors; Astrologers attributed it to the proximity of Jupiter, Saturn and Mars; the public was told that bathing and exercise were risky because they opened one’s pores; some even said it could be passed through an evil stare (2, 3). We can only imagine the pervasive panic, fear and misunderstanding that drove people to all sorts of ineffective “preventive” behaviors.

Even when the true cause of the Plague was discovered, I wonder how long it took for people to actually believe the real scientific explanation, or begin bathing and making eye-contact once hearing that their previous beliefs were incorrect.

While we may think of ourselves today as a scientific society—able to release established beliefs and modify our approaches when new information comes along—maybe we aren’t so different from our medieval ancestors. All tightly-held beliefs are scary to let go.

First, an admission: I have been through my own sort of Dark Ages, holding on to an entrenched way of thinking, perpetuating what I ultimately learned was a counterproductive approach to health and healthcare management. Ten years ago, I believed that I understood the primary causes of high health care costs and utilization. I was paid to speak and write about it—which I did to the best of my ability. The process of discovering that I was, in fact, wrong, struck me as—in order—puzzling, humbling, frightening, and then enlightening and even promising. But I admit, early in the uncomfortable phase of learning a new paradigm, it was tempting to simply say, “Don’t tell me,” or “This is irrelevant,” knowing that no one would likely ever find out. It was the first time I understood the meaning of “ignorance is bliss.”

I needed to admit I had been wrong, or at the very least overly narrow, in my perspective about corporate health and the causes of sharp increases in healthcare costs.

Truly, I understand that changing our minds is not easy, and can even be threatening to our egos and livelihoods. But I also discovered that admitting I was wrong led to real solutions and brought meaningful contribution to a field in need of new ideas.

Whew. New explanations come as a relief.
Once I got over my dread of admitting I was wrong, it was an incredible relief to understand WHY THINGS DIDN’T WORK the way I expected. I could now explain why medical costs were high in groups who were supposedly very “healthy.” I could explain why the same health program could succeed in one organization and fail miserably in another. The perplexing mysteries of why two people with the same disease could behave so dramatically differently suddenly weren’t so mysterious any more.

Essentially, the new ideas were these: What if the relationship between health status and benefits costs has been vastly overstated? And instead, we can explain a lot about healthcare costs and business outcomes using economic observations like these:

Overall, medical costs are an inaccurate measure of health status. Two people with the same illnesses at the same level of severity will not seek or receive the same healthcare services. Many, many other factors—especially economic, but also social, occupational, beliefs and perceptions—will influence how much healthcare different people demand and consume (4).
Rates of disability insurance claims are a poor indicator of significant healthcare needs. Rates of disability vary dramatically due to economic incentives, wage compensation, job and family circumstances (5, 6).
Medical cost differences between groups reflect a wide array of factors, surprisingly little of which is health status. Particularly when business practices or benefit designs create perverse economic incentives, healthcare cost differences are nearly impossible to trace to actual differences in health status or geography (4).
A population getting more care is not necessarily sicker, nor are they getting better care for each additional dollar spent. Too often, it is quite the opposite (7, 8, 9).
Use of healthcare and disability insurance is not proof of medical problems or always reflective of severity. If someone interacts with the medical system, he or she will receive a medical label simply because there is no other way for physicians to bill for their services. If the cause of a visit is more socially-driven than medical, the claim will still be labeled as medical.
Health intervention programs, while well-intended, are rarely an employer’s best chance at reducing healthcare and absence claims. Most employers can have a greater impact on the costs AND health of their workforces by altering non-health-related practices (such as compensation, paid time-off, manager training and other factors) than by intervening to try to influence an individual’s health status directly (10, 11).
If we only look at indicators of medical problems, we will only find more disease-focused solutions to try. As they say, if you only have a hammer…everything looks like a nail. Attempts by employers to improve health will not manage costs unless other factors are aligned first.
When a company aligns its business practices in ways that help employees be successful at their jobs, healthcare costs go down and employees pay more attention to their own well-being. The side-effect of good business practices is better health—meaning that maybe we have been trying to solve the health problem in the wrong way (12).

There’s no going back.
Before, when I was advocating that the best way to reduce healthcare costs was to add an ever-growing list of health improvement programs in every company, this list of statements was frightening. How would I explain my previous recommendations? What might my colleagues say? (And they did say: “What HAPPENED to you?”).

But, faced with strong economic evidence and clear, repeated examples, there was no denying it. There is a better way to improve health, enhance business performance, and save money; I couldn’t honestly say otherwise. Most gratifying, what I learned was helping improve the health, careers, and business performance of workers and organizations.

Many people I talk to like the other explanation better.
And to them: I get it. New answers can be threatening to our belief systems, egos, and careers.

But new answers also help us explain more, achieve better outcomes, and become more efficient. For the sake of future companies and employees, I hope those folks reconsider. Who knows, like bathing, maybe it will make the world a better place?

Why this matters: Resistance to new ideas, especially disruptive ones, is natural. Life seems easier when we can stick with what we know. But there are significant opportunities to improve both health and business outcomes by changing the way we understand the drivers of cost. A new understanding of a problem can reveal different—and sometimes better—solutions.
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References
(1) Fischer, M. H. Science Quotes by Martin H. Fischer (accessed November 20, 2009).

(2) Benedictow, O. J. The Black Death 1346-1353: The Complete History. DS Brewer; Feb 2006.

(3) Britain Express. The Black Death in England 1348-1350 (accessed November 20, 2009).

(4) Self-Care Institute. Demand Management Handbook. Washington, DC: Partnership for Prevention; 1996.Health as Human Capital Foundation.

(5) Money matters in decisions about disability. Entry 2 - 2005 . Sep 27 2005 (accessed November 20, 2009).

(6) ---. Getting value from health benefits: Use them or lose them Entry 18 - 2007. Aug 26 2007 (accessed November 20, 2009).

(7) Lynch, W. D.; Edington, D. W., and Johnson, A. Demand management. Predicting the demand for healthcare. Healthc Forum J. 1996 Jan-1996 Feb 28; 39(1):20-4.

(8) Fisher, E. S.; Wennberg, D. E.; Stukel, T. A.; Gottlieb, D. J.; Lucas, F. L., and Pinder, E. L. The implications of regional variations in medicare spending. Part 1: the content, quality, and accessibility of care. Ann Intern Med. 2003 Feb 18; 138(4):273-87.

(9) --- The implications of regional variations in medicare spending. Part 2: health outcomes and satisfaction with care. Ann Intern Med. 2003 Feb 18; 138(4):288-98.

(10) Health as Human Capital Foundation . How much does health drive healthcare costs anyway? Entry 20 - 2009. 2009 Sep 27 (accessed October 8, 2009).

(11) ---. Part IV: Business Practices—A major, modifiable driver of healthcare costs. Entry 21 - 2009. Oct 11 2009 (accessed October 22, 2009).

(12) ---. Money Matters. What do skinny people in big houses have to do with flu shots and bonus pay? Entry 11 - 2008. May 26 2008 (accessed June 5, 2008).

Letting employees manage their own time off? Maybe it’s a win-win. Entry 23 – 2009

2009-11-08T09:54:00.010-07:00

At the Health as Human Capital Foundation, we often witness scenarios where employees, when given the choice and proper incentives, actually spend company time and money MORE wisely than they would under a strict set of rules or governing policies.

This is just that sort of example.
Most every company we work with has an extensive paid-time-off policy, detailing what days are allowed, for what purposes, and at what times during the year. There are extensive rules governing its use and tracking their frequency. But it’s worth asking: even when companies spend time and energy defining a thoughtful policy and system, is there an exact amount of time off from work that suits each of us perfectly? What if we allow workers some discretion in how much time off they want?

At a recent luncheon, I spoke with an executive who felt strongly that companies should designate a required amount of time off and was uncomfortable with the notion of letting employees decide how much to take. He couldn’t articulate why, just that generally people might not know what was “good for them.” I wondered, does any CEO know what employees need more than they do?

Let’s look at an example where a company allowed employees to decide whether to use their time off or take home more pay…

The graph above shows what happened when a company (in a service industry) decided that after a base accumulation of days off, employees had the option to cash-in unused days for 100% of wage value instead of using them. In the two years after that policy began, employees, at their own discretion, took 1.3 fewer days off per quarter, dropping from a total of about 32 to under 26 days per year (about 16% fewer). (Click on the graph to enlarge)

In a population of 4,000 employees, this is 20,000 days or about 80 FTEs—2% of the workforce—who were on the job instead of absent.

A Win-Win: This company reduced absence and allowed its people to earn more. Should all employers consider a cash-in option?

The potential benefit of allowing people to work more probably depends on at least two assumptions:
1) There is enough work that employees are needed on extra days,
2) There is no harm caused by allowing the person to work more.

Let’s presume the first item to be true most of the time: more employees are needed to do the work. Most frequently, when I hear arguments against allowing employees to cash-in days, they pertain to the second issue—harm.

Certainly there are jobs where public safety is a concern: pilots, truck drivers and crane operators are great examples, where the government actually intervenes with laws that restrict overtime and work hours to protect public safety. But what about the vast number of office workers who are not a concern to public safety? In such a workforce, is there an absolute minimum number of days off a person requires to be productive and function optimally? And must those be PAID days?

Consider self-employed workers and entrepreneurs. If there was ever a group of workers that we respect, it’s the self-starting, entrepreneurial risk-taker who stakes out on his or her own to do something new and innovative. Isn’t it true that self-employed workers are in charge of their own schedules, earning money when they work, and not earning money when they don’t? This population is a clear example of workers who have complete control over their time, and good incentives to spend it wisely. Do we worry that all self-employed people will harm themselves by working too much? I don’t.

Reactions to the work-more option.
In addition to the reaction I heard from my lunch companion—that employees don’t know what’s good for them—I have also heard that making employees choose between more pay and time off is “cruel,” and that government workers are “owed” more time off because their base salaries are so low.

What I rarely hear is the basic economic truth: mandatory paid time-off comes at the direct expense of higher pay. When companies budget an employee’s total compensation, they allot a specific portion to paid time-off—a portion determined by the company. Remember, pay usually reflects value produced by the average worker in a specific job. If we plan for employees to work 90% of the year rather than 100%, pay will be 90% of what we would expect if they worked all year.

What if you have a worker who trains and competes in marathons and wants six weeks off every year (and is willing to sacrifice pay for that option), and another worker saving up money for a new house who would rather take two weeks off and get paid for the rest? If the official policy is four weeks, it meets neither of their needs.

Within the bounds of a) a minimum amount of work days we need an employee to perform adequately, and b) a maximum that prevents a safety risk, why must companies decide on a worker’s behalf? In the example above, the company’s assumption about how much time off employees want and need was 16% wrong before they changed their policy to give employees a choice. Clearly, some people will choose money rather than more time off.

At the very least, explain to employees how time off fits within total compensation.

Our research indicates that when employees understand—and see evidence of—a direct connection between their compensation and business success, they tend to have higher levels of productivity and lower utilization of discretionary benefits.

A good starting place is itemizing everything the company pays while a worker is employed: wages, plus training, plus payroll taxes, plus healthcare, plus life insurance, plus time off. Seeing how much of total compensation does NOT go to wages and performance pay helps open the door for conversations about how the company allocates its human capital investments, and how that allocation could change for mutual benefit.

Too often employees hear what “they get” once per year (if that), rather than an ongoing dialogue about how effort and attendance translate into business success—and how lower use of benefits can result in greater allocation of resources to bonuses, profit sharing or training opportunities.

Be straightforward and transparent with employees about how money gets spent, and consider giving them an option to use it in ways that fit their ideal mix of work and home life. Perhaps it is time to trust that their choices may produce a win-win.

Why this matters: One size does not fit all when it comes to paid time-off. There are situations where workers will choose to work more, or less, than the company designates. Further, connecting pay to attendance reminds everyone that business success results from the work we do, not just the people we hire.

When someone else pays, you simply care less (and spend more). Entry 22 -2009.

2009-10-25T14:49:00.014-06:00

Do you honestly believe that individuals deserve the right and responsibility to make their own choices about health care? Before you answer, remember, the ultimate decision-maker is the one who spends the money. So, giving individual patients control also means putting them in charge of healthcare dollars.

When it comes right down to it, most people say they support patient rights, but only in the context of someone else paying the bill. Here’s why those two issues cannot be separated:

When discussing health savings accounts with employers, I often hear concern that connecting financial factors to health decisions will lead to employees making bad choices (mostly by not getting the care they need). I hear a widespread belief that asking people to take financial accountability for healthcare produces negative outcomes, not positive ones.

Rarely do I hear policymakers acknowledge that the opposite is also true. Actually, when we remove financial accountability we actually expose people to risk because we encourage people to stay uninformed (1). Economists use the term “rational ignorance” to describe instances where the cost of becoming informed exceeds the perceived value and hence people remain rationally ignorant.

If you understand that all medical procedures—especially those done unnecessarily—contain inherent risk, then remaining uninformed increases the risk associated with healthcare decisions. (For a refresher on why more is NOT necessarily better for patients, review the wonderful work of Fisher and colleagues (2, 3).)

Rational Ignorance
Because it takes time, effort, and sometimes money to be informed, we choose where to place our energy, attention, and resources. Like any other endeavor, why go to the trouble if the potential benefit isn’t greater than the cost? Under normal circumstances, there is much to be gained by being informed:

Money Saved (by comparing prices of different brands and stores);
Value Gained (by comparing what we can GET for the price);
Time Saved (by knowing an option is closer or easier to use);
Best results (by knowing how to use the item you get—e.g., medicine—appropriately, you have a better chance of it working); and
Personal Control or Preferences (the satisfaction, peace of mind, or other personal preferences that are met when you decide what’s best for you).

BUT—it also takes work.

Two factors ultimately influence whether we decide to become informed about a topic: the value one perceives getting out of it (in the many forms described above), combined with one’s ability to influence the eventual decision or situation. If we feel we have no influence, and it doesn’t really bring us personal value anyway, why spend the time and energy to be informed? Rationally—we wouldn’t. Rationally, we remain ignorant.

For example, unless it is a rare topic that affects us in a significant way, few voters invest significant time and energy understanding the referenda on the ballot, because we don’t feel like our vote will influence what happens anyway. Why bother?

Think about it: most of us know a lot more about the features on the cars we might purchase (which involves our choice and our financing) than we know about which doctors in our community deliver the best care for the best price.

Compare medical services to other activities and needs in our life:

When choosing how to spend our money:
When you bought your house, did you look at prices in that neighborhood to see if you were paying a fair price? Did you investigate whether the neighborhood was safe, and have an inspection to be sure the value of the house was accurate?

When choosing how to spend our time:
Do you read reviews or ask friends about movies or books before you buy them?
On your last vacation, did you research different activities in the area, to best meet your expectations for the trip?

Remarkably, medical care is one of very few services we “purchase,” while knowing almost nothing about the cost, the quality, and without guarantee from the person providing it.

We stay rationally ignorant about healthcare because we know someone else is in control.

While healthcare reform is big news and evokes high emotion and political interest, most citizens are not particularly informed about the specifics. Virtually all of the proposals still ensure that someone else pays for the majority of the cost of care, and that someone else will decide what type of care will be allowed.

Regardless of whether the “someone else” is government or a private insurer, consumers will remain largely uninformed and disconnected from all related information—including price, safety, and quality. Not because agencies won’t attempt to make information available, but because the cost of becoming informed exceeds its value. Unless we have great experience, influence or resources, we know we are not in control anyway.

The Ethics of Health Care Reform, published by the non-partisan Institute for Policy Innovation last summer, compared six different models for providing health care and concluded that none was ideal (4). However, they came to the following conclusion:

“There is only one system that promotes patient choice, and yet still maintains the elements of a well-functioning health care system that ensures access to quality care while keeping costs under control: the consumer driven model” (p. 8). (It was a high-deductible plan with a funded HSA.)

While not using the term “rational ignorance,” the report focused on the patient as the rightful decision-maker. “When a third party—government, insurer or employer—controls most of the health care funds, that entity eventually becomes the decision maker, not the patient” (p. 4).

Payment equals control.
The party with the purse strings decides who gets paid, for what, and how much. It’s a simple equation. Thus, anyone who truly agrees that the consumer/patient should be the rightful decision-maker must also agree that consumers should have control over the money spent. Deciding and paying are one in the same.

When we insist that patients should decide about care, but only within the context of a third-party payment system, we create an illusion of patient influence. Patients understand that someone else—a doctor or an insurer—will be granting ultimate permission. This explains why most of us remain ignorant—rationally.

Some will insist that healthcare decisions are far too complex and/or dangerous for patients to make without a doctor acting on their behalf. We disagree. While patients may need or want support in understanding options, that support should come from a person who first and foremost serves the patient. Doctors are humans, influenced by incentives and rules (inherent in the payment mechanism); their advice will reflect who is paying them, and for what. That alone should remind patients that control of payment is an important component of healthcare decisions.

Why this matters: Protecting people from financial responsibility for healthcare exposes them to risks by encouraging them to remain uninvolved in care decisions. Payment decisions cannot be separated from care decisions because true ownership requires control of both. Regardless of which third-party we place in charge, patients will remain disenfranchised and rationally ignorant—meaning costs will continue to rise and quality suffer. Consider this as we watch reform evolve without meaningful patient involvement.
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References

1. Downs A. An Economic Theory of Democracy. New York: Harper; 1957.

2. Fisher ES, Wennberg DE, Stukel TA, Gottlieb DJ, Lucas FL, Pinder EL. The implications of regional variations in Medicare spending. Part 1: the content, quality, and accessibility of care. Ann Intern Med. 2003;138:273-87.

3. Fisher ES, Wennberg DE, Stukel TA, Gottlieb DJ, Lucas FL, Pinder EL. The implications of regional variations in Medicare spending. Part 2: health outcomes and satisfaction with care. Ann Intern Med. 2003;138:288-98.

4. Matthews M. The ethics of health care reform. Institute for Policy Innovation Issue Brief; July 20, 2009. Accessed October 22, 2009.

Part IV: Business Practices—A major, modifiable driver of healthcare costs. Entry 21 - 2009

2009-10-11T11:19:00.014-06:00

In the previous blog, we covered three out of the four drivers of healthcare costs:
1) Basic costs & bad luck;
2) Demographics and labor market; and
3) Health status.

We learned that #1 and #2 account for a portion of healthcare costs that are non-modifiable, and that health status is a less influential driver than one might expect.

We move to the final driver of healthcare costs, which is both modifiable and significant, but unfortunately too often overlooked: business practices. What do we mean? Business practices are the entire set of employee policies and practices captured in everyone’s workplace environment and employment contract—such as how compensation works, how health benefits are structured, how time off is allotted, how employees are trained and managed, etc. In combination, these practices have amazing influence over employee behavior. (This topic has been touched in previous blogs and will not be surprising to regular readers.) However, the magnitude of business practices’ influence on employee behavior catches most people off-guard.

The bottom line: business practices can have three times the impact on cost as health status. First, some history. If business practices matter so much, why haven’t we heard about them before?

Actually, you probably have, just not in one place. Most of these effects are well-documented.

Actuaries have decades of evidence showing the impact of deductibles and copayments; however, it is usually seen as differences in cost-sharing arrangements rather than behavioral incentives (1, 2).

Management and compensation journals highlight many ways that rewards impact worker performance and withdrawal (3, 4).

Risk management professionals understand that worker satisfaction influences the rate of accident and injury (5).

Disability carriers clearly understand the relationship between insurance policy design and the rate of claim submission (6).

Experts in talent development know what sorts of advancement opportunities help an organization keep its top workers.

Health economists have documented the use-it-or-lose it phenomenon of both sick leave and annual deductibles (7, 8).

So, the evidence is everywhere, but each piece of it typically remains stuck in separate fields. And because this information is so seldom captured and integrated from so many different sources, the impact of independent cost drivers has been nearly impossible to measure, until now.

Economics tell us that incentives matter.
Simply put, if we align business practices such that employees can earn more rewards for being more productive, and get extra value by avoiding absences, both are more likely to happen, no matter what the health status of the group. On the contrary, if employees perceive little reward for higher productivity and have to take absence days in order to avoid ‘losing’ them, workers are more likely to be absent, REGARDLESS of their overall health status.

Thus, when we examine the full array of business practices, a combination of aligned compensation, benefits design, training, and management practices can influence healthcare and disability costs by as much as 30% or 40% compared to misaligned business practices. (Remember, improving health status (Part III) by 10% only produces a 10% cost improvement opportunity.)

A typical example is shown in this figure (click to enlarge) where medical and absence costs are separated along the lines of the categories discussed above. This is a hypothetical “organization” with typical business practices we commonly see in large corporations. As expected, there is a significant cost component attributed to Basic Costs and Workforce Demographics (Parts I & II). Also notice that there is potential to reduce costs through a 10% health status improvement (Part III). But of critical importance, our models indicate that the vast majority of their modifiable costs (which account for 39% overall) are attributable to their business practices (28%).

While the effect of business practices may seem large (in some cases up to 40%), recall that we are talking about a combination of many different business practices. In the RAND health insurance experiment, the effect of a larger deductible by itself was a 40% difference in medical costs (1). Here we are talking about policies and incentives governing healthcare coverage, paid time-off, compensation, disability, training, and other things. Given the cumulative influence of all these incentives combined, we should not be surprised that their sum is dramatic.

Which business practices matter most?
The truth is they act in combination because they are interrelated in fundamental ways. The easy answer is that we need to align them all. But which one is MOST important for a given organization depends on what they are already doing right. Compensation design influences benefits use, absences policies influence medical costs, training practices influence turnover, and so on. In other words: cost drivers that are sometimes considered to be unmodifiable (in the sense that they are immutable) are really influenced by the modus operandi (management practices) of the business and therefore are really modifiable.

In separate blogs, we have explained that business practices have measurable impact in several areas, such as:

PTO plans and buy-back plans (versus strict sick leave) improve attendance.

Variable pay plans improve retention, absence and benefits use.

High deductibles combined with fully-funded HSA plans reduce costs and improve health protection.

Our new models confirm that aligned business practices are predictive not only of benefits cost, but also productivity and turnover. And, from all indications, better aligned business practices also enhance employee engagement and health program participation.

All aspects of human capital management are connected. How you reward, train and manage people has a stronger effect on business performance than you may think. This is no longer simply a health benefits issue, but a critical discovery that points to affordable solutions that have a demonstrable effect on business performance. Further, if a company’s sole strategy for controlling medical and disability costs is focused on health improvement or value-based purchasing strategies, the largest part of the cost-savings opportunity will be missed.

Why this matters: Employers invest billions of dollars in health improvement and health management to try to control costs. Yet many employers overlook an even larger opportunity to reduce benefit costs by aligning incentives with their business practices in ways that do not require additional investments. Ignoring such obvious opportunities leaves huge potential for business performance unrealized.
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References
1. Newhouse JP. Free for All? Lessons from the RAND Health Insurance Experiment. Cambridge, MA.: Harvard University Press, 1993.

2. Manning WG, Newhouse JP, Duan N, Keeler EB, Leibowitz A. Health insurance and the demand for medical care: evidence from a randomized experiment. Am Econ Rev 1987;77:251-77.

3. Lazear, EP. Performance Pay and Productivity. American Economic Review 2000;90(5):1346-61.

4. Trevor CO, Gerhart B, Boudreau JW: Voluntary turnover and job performance: curvilinearity and the moderating influences of salary growth and promotions. J Appl Psychol 1997;82:44-61.

5. Butler RJ, Johnson WG, Côté P. It pays to be nice: employer-worker relationships and the management of back pain claims. Journal of Occupational & Environmental Medicine 2007;49(2):214-25.

6. Health as Human Capital Foundation. Money matters in decisions about disability. September 27, 2005. Accessed October 11, 2009.

7. Keeler, EB, Rolph, JE. The demand for episodes of treatment in the health insurance experiment. Health Econ 1988;7(4): 337-67.

8. Ehrenberg RG, Ehrenberg RA, Rees DI, Ehrenberg EL. School district leave policies, teacher absenteeism, and student achievement. J Human Resources 1991;26(1):72-105.

How much does health drive healthcare costs anyway? Entry 20 - 2009

2009-09-27T09:45:00.014-06:00

When medical and disability costs are high, conventional wisdom assumes there must be more illness driving up costs, right? But how much of total cost can we actually attribute to health status versus other things?

Four Parts
There are actually four driving components of health and absence cost, the first three of which we’ll cover here, and the fourth in the next blog. To give away just a little of the secret in advance, it may surprise some readers to learn that health status is not as powerful a predictor of cost as one might expect.

Believe it or not, our research on nearly 2 million employees and their families across the US finds that a surprisingly small amount of the variation in healthcare costs can be attributed to health status.

We’ve studied how each of four components independently influences cost when all the others are held constant. (We won’t get technical about this other than to say that our analysis included medical and disability data from tens-to-hundreds of thousands of people, running two-part regression models to estimate independent effects.)

The first two components involve “non-modifiable” costs that cannot easily be influenced or changed, while the second two involve costs we consider to be “modifiable.”

Part I: Basic needs and bad luck
Could healthcare and disability costs actually go to zero if we had a very young, generally healthy population? Clearly not. To explore the possibility though, we constructed a model that would approximate such a population. We selected characteristics that correlate with lower costs. We took a young (late 20s), mostly male, single (e.g., not having children), highly-educated, highly-paid workforce, in a region known for low-cost care, with all benefits policies and business practices aligned for optimal use of benefits.

Can you guess what it would cost to cover the healthcare spending of this virtually-risk free group? Our data says it is somewhere near $1,300 on average per year. Some costs would be associated with basic needs, and some would be the result of misfortune due to genetics or accidents. As you might expect, the majority in this population would have very small expenditures, with a few high outliers.

(My colleagues and I debated about this number because it is virtually impossible to have a population this young, highly-paid, in a specific region, and with a specific gender and marital-status profile. However, this was never intended to be an achievable situation, just the lowest imaginable.) So, the lowest imaginable total for Part I: $1,300 / adult person / year.

Part II: Demographics and labor market
Face it, age matters. Our bodies wear out. Other factors such as where we live and the type of work we do matter, too.

To explain how demographics and labor market affect cost, figure on AVERAGE:

Older workers spend more on health than younger workers;
Women cost more than men (at least up to a certain age);
Lower education and lower salary correlates with higher medical and absence costs; and
Workers in some regions spend more (North East) than others (Rocky Mountain).

Companies naturally hire a workforce with the skills and characteristics needed for the services and products they produce. One company might attract an older, mostly female, less-educated workforce who will earn minimum wage in Minnesota. Another might attract highly-skilled, younger, male engineers in Boston. Because most companies tend to have a consistent labor market to choose from, and because the demographics of those hired rarely involve drastic changes in type of workers, level of pay, or location, we consider the “Demographics and Labor Market” part of cost to be largely non-modifiable. *

To illustrate the impact of this component, a company in New England with an average employee age of 40 and hourly workers making $40,000 per year would be expected (OTHER COMPONENTS KEPT EQUAL) to add another $1,500-$1,800 per employee above the basic ($1,300) amount from Part I. The same group aged 50 or 60 years would add almost $2,200 or over $3,400 per employee, respectively. (click on the table to enlarge)

Non-modifiable total for Parts I & II: These two components can vary, as we see, from under $1,300 (in our “lowest cost” situation) to $4,700 in the extreme. For the companies we work with, the non-modifiable portion often sits in the $2,500 to $3,500 range. However, total costs for these companies often range from under $4,000 to almost $6,000 per person per year! So if basic costs, bad luck, labor pool and demographics only account for about 60%, where does the rest of the cost come from?

Now for the modifiable parts. By modifiable, we mean something that can be altered by the individual, and/or influenced by the employer. Above, we categorized demographics as non-modifiable because you cannot change them unless you change who you hire. Modifiable factors are those you can theoretically change in the people you already have.

Part III: Health status

When health declines, costs go up. Naturally, we put this component in the ‘modifiable’ section of cost, because each of us can decide to what degree we avoid risk and protect our health.

Once again, to isolate the influence of health, we hold constant the basic needs, bad luck, demographics and labor pool factors described above. In the end, our research finds that a 10% improvement in health will influence and reduce costs by about the same amount, between 7-11%.

Here is what I mean:

A 10% decrease in the number of diagnoses people have correlates to a medical and disability cost difference of 11%.
A 10% decrease in the number of medications people receive results in a medical and absence cost difference of 7%.
A 10% improvement in self-reported health status (a 10% average group score on a scale from poor to excellent, e.g. from 3.0 to 3.3) correlates with combined medical and disability cost decrease of approximately the same amount, 9%.

For those who want a more technical explanation…basically these analytic models tell us that when health-related metrics indicate that when the same population (same demographics, jobs, work environment, location) is 10% healthier, they will be about 10% less costly. If the population is 20% healthier, we would expect them to be 20% less costly.

So let’s do the math. If a group has non-modifiable costs (from Part I & II) of around $4,500 per employee, their total costs could be = $4,050 if they had 10% better health status than average people of that age/gender/location, etc.

What catches my attention is the magnitude of change in health status required to produce a cost savings. On the one hand, it validates what we all know: if we live healthy lifestyles and avoid many of the preventable illnesses we develop as we age, we will feel better and cost less.

On the other hand, after evaluating the broad range of health programs, disease management, case management, and wellness efforts available to employers across the US, I don’t recall a workplace intervention that produced a full 10% improvement in actual health status across all employees.

My colleagues in the wellness industry will likely object to this number, because published studies have shown larger dollar figures regarding the cost of health risks. We often quote studies saying that a risk factor equates to thousands of dollars. While this is a topic for a different blog, it reminds us to look carefully: have we ever seen a case where every member of the entire workforce successfully eliminated a full risk factor? If we convince only part of the population to accomplish this, the dollar value will be a fraction of the full value.**

So, if improving health status by 10% would reduce costs by about 10%, what else is there?

To isolate the independent effects of the first three parts above, we held everything else constant: not only characteristics of the workers, but also the employee policies and business practices in their place of employment. This set of predictors is usually left out of health-related modeling, but you’ll soon agree, it shouldn’t be.

Which leads us to Part IV.

Part IV: Business Practices

In the next blog, we will cover a critical and often overlooked driver of healthcare and absence costs: business practices. All of the underlying incentives inside an employer culture matter—how benefits are designed, how people are paid, how they are managed—each influences utilization of benefits. More often than not, these factors have a stronger influence on cost than health status.

Why this matters: In some instances, we overestimate the influence of health status on healthcare and absence costs. As a result, companies presume that ever-increased spending on health programs will reduce their overall healthcare costs. Being realistic about what really drives benefits costs will help organizations make investments in their human capital that more effectively produce return-on-investment.

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Notes:

*In this brief discussion we are really only looking at “demand-side” components of cost; we are not going to address how the supply-side (meaning differences across providers) affects costs, although we acknowledge this phenomenon is very real. To some degree this is included in regional differences.

**Certainly, some of the differences in different regions of the country, which we are attributing to demographics here, reflect differences in health habits. We know from national statistics that obesity rates and smoking rates differ in different parts of the country. In this discussion we are taking the point of view that the employer has a specific labor pool to choose from. From here we ask: how would a change in health status in this labor pool affect costs?

What patients should be fighting for: Control of both dollars and decisions. Entry 19 -2009

2009-09-13T19:32:00.003-06:00

If those who have the money are the ones with decision-making power, why not let patients have both? As government and insurers debate over who should grant permission to doctors about which treatments and care regimens are acceptable, why not award ultimate control to the person in the best position to decide—i.e., the person receiving the care?

Consider this story:
In a radio interview last month, I heard two doctors (specifically, both called “interventional cardiologists”) debating the merits of their preferred approach to unclogging heart arteries. One followed guidelines based on evidence that when patients are stable, medications are as effective—and often safer in the long term—than placing a stent in the artery. The other has a “bias” toward stents, and places an average of seven a day. He says that when he sees the blood flow increase immediately, he knows it helps the patient immediately. Both doctors insist that money has no influence on how they practice, and if it influences some doctors it only happens at a “subconscious” level.

While it was unsettling to hear two doctors interpret sound research so differently, it was not surprising. The most disturbing aspect of the interview was the part they DID agree about:
THEY choose what the patient needs most; THEY have the freedom to decide what procedure to perform on behalf of their patients; and “THEY just don't want the government or insurers telling them what to do.”

Not once did either doctor mention discussing the options with patients, or mention their patients having any role whatsoever in critical care involving their hearts! There are benefits and risks associated with each option, the personal value of which only a patient can decide.

Debating government (as an insurer) versus insurers (as a governing payment system) misses a critical point.

When doctors OR politicians argue about who will make “health decisions,” they SAY they don’t want government or insurance getting in the way of a decision made by a “patient and his doctor.” Yet, as we know, patients are not included in informed decision-making as often as we’re being led to think.

What doctors are really arguing about is who will govern the purse strings, i.e., who will make “payment decisions.” The party in control of the dollars will inevitably decide which medical practices get reimbursed, and for what price. And, the procedure that gets paid through reimbursements is the procedure most doctors will choose.

While each side argues which payment system will do better job of protecting the all-important physician-patient relationship, one can only wonder whether the typical relationship is one that deserves protecting. Despite the terminology, neither the private, nor the public option mentions a guarantee of patient inclusion, beyond signing an “informed consent,” which is really just a permission slip approving what has already been decided.

Sadly, one of the only patient-decision-making provisions (optional counseling about end-of-life choices) mentioned by either side has now been removed after it was misconstrued by opponents and in the media.

What should patients be fighting for? Control of both dollars and decisions.
What if we did create health accounts and send patients dollars or vouchers to pay for treatments?

I know—I can already anticipate the objections about patients not being capable:
1) Patients don’t know enough to make good decisions.
2) Patients will be misled by providers when they are vulnerable.

But let’s ask ourselves, are patients better off now in a system where they have almost no control over payments and leave decisions up to others? Are patients given the right amount of information now during times when they are vulnerable?

True reform would come from the bottom up, rather than swapping out big payers.
When we spend our own money, we tend to become more informed and make choices more carefully. In a patient-controlled system, independent, trusted services will evolve (like consumer reports) that help people navigate the system.

In a market where consumers have dollars, we would likely see a revolution of lower-cost health treatments taking the place of today’s outrageously-priced technologies. When the consumer (spending dollars) is choosing rather than a doctor (earning dollars), the incentives would create an opening for brand new approaches to care. Today, doctors protect their right to do high-cost interventions (like stents) instead of prescribing lower-cost medications…while someone else pays.

Despite the insistence of the doctors in the interview above, never doubt that medicine is a business, regardless of who pays. Years ago, the director of a prominent cardiology group approached me about trying to justify higher fees for a safer, lower-cost treatment option.

Asking for anonymity, he confessed that while his team was aware that the new option was probably less traumatic for patients, they decided to continue the traditional approach because revenues were so much higher. He insisted that if only employers would pay additional money for the more efficient option, patients could get better care. Sadly for him, I could think of no method for justifying an over-priced fee for a better option that should be saving everyone money.*

In that unfortunate case, patients were not paying and were not asking about less expensive treatments. And the treatment center didn’t advertise the cheaper alternative. If patients were interested in great outcomes for less money, smart developers and providers would fill the void.

Why this matters: Patients can and should be active decision makers in their healthcare treatments. Any third-party payer, regardless of who it is, retains control by virtue of approving or denying payment for care. If we really want something different, we can make that happen. Placing financial control in the hands of patients would change the dynamic of the doctor-patient relationship in ways that would encourage collaboration, efficiency and accountability.

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*Note: This example certainly highlights the type of provider who does not promote active decision making by patients, and is not intended to represent all providers. We acknowledge and commend the many providers who do facilitate shared decision making, yet believe this practice is not nearly as common as it should be.

References

1. Joffe-Walt C. Doctors Disagree About Effectiveness, Cost of Stents. August 26, 2009; Accessed September 13, 2009.

The day an entire work force got sicker – or did they? Entry 18 – 2009

2009-08-30T08:52:00.012-06:00

Imagine being a benefits manager for a large corporation boasting three straight years of flat medical and absence costs in 2005, 2006 and 2007 (1). Like many benefits managers, you might be proud and vocal about the many programs you’ve purchased to encourage health and disease management. We have all seen such flat trends attributed to health interventions provided by employers. This example was no different.

If health programs or active management of disease could be credited for a three-year flat trend, how does one explain what then happened to the same company in the following 15 months?

Did everyone suddenly become ill in the fall of 2007? Suddenly, chronic diseases and injuries just appeared?

To confirm, detailed analysis of health claims shows that virtually every category of illness became more prevalent and more expensive. So, if you believe the only driver of medical costs is the number and severity of medical conditions, you have to conclude that poor health made things worse. But if so, what happened to all of the programs (which were still in place, by the way) we credited for the three-year flat trend?

Of course there are other reasons…
More frequent and more expensive medical claims do not prove more disease or increased severity. This is about more care-seeking, not more health problems. It will not surprise most readers to learn that several non-health-related events happened at this company right at the point where the cost trend changed: business revenues started to fall in mid 2007, which brought about a hiring freeze and some lay-offs. Bonuses fell, salaries did not rise as quickly as before, and the company announced a restructuring process.

No, people did not all-of-a-sudden have new diseases, but there were definite changes in their reasons for using benefits. When business events make work more tenuous and stressful, we often see workers:

Getting discretionary procedures done before possibly losing health insurance;

Using time off to go job hunting;

Having less enthusiasm for attending work in general;

Spending down any unused Flex Spending and Health Reimbursement funds;

Seeking additional medical services for stress-related symptoms; and

Drastically increasing benefit use prior to termination.

All of these factors, and perhaps others, probably contributed to the significant cost increase in this case. And, while it is certainly true that increased stress at work is likely to cause workers to feel lousy, that is different than developing new chronic illnesses or injuries.

Why do we cling to the ‘health only’ explanation?
Although it surprises me, many presenters at corporate health conferences still perpetuate the idea that health benefits expenditures are purely a function of disease. They insist that if a company’s expenditures are high, it is completely due to a sicker workforce (that needs more intervention). And similarly, they insist that a lower-than-expected trend is a reflection of better health. That is only one factor. As we see here, that explanation can backfire when more complete information is available.

In tough economic times, it is even more important to align incentives with business success. Never forget that incentives matter; meaning that if employees can get value only from USING benefits, this problem will only further amplify when business is down. Higher deductibles, the presence of health savings accounts, cash-back for unused time off, lower pay during short-term disability and higher bonuses all give employees reasons to stay healthy and minimize costs no matter what the economic climate. These incentives counteract the natural tendency to use-before-you-lose, and they position judicious consumption in everyone’s best interest. The current recession has strained nearly every company in the U.S. The trend shown in these graphs is not unusual; but the more misaligned a company’s incentives, the greater the predictable increase in benefits consumption.

Think of it this way: when employment becomes less certain, future benefits are threatened, and there is no inherent value in NOT using benefits—people will naturally respond in their own best interest with higher consumption. So, have you checked your trend lately? Maybe it’s time to realign.

Why this matters: Health-benefit costs reflect more than health. Given the economic climate, there has never been a better time to check incentive alignment. If they have something to gain, employees will be better stewards of the resources at their disposal. ____________________________________________________________

Notes

1. Although this is a real trend, we altered the actual values a little bit to protect the company’s identity. Several companies we work with have had similar experiences during the recent economic downturn, so think of it as a composite of multiple organizations.

The key health reform issue no one is talking about...Entry 17 -2009

2009-08-16T09:24:00.004-06:00

.....we cannot afford (nor should we strive) to provide unlimited medical services to every person in our nation.

Almost everyone agrees: healthcare reform is needed, and the call is loud and clear. Silently, decision makers have also agreed NOT to tackle the hard questions that must be answered before any of the debate can be settled.

Ultimately, the healthcare crisis is a simple case of limited resources and unconstrained demand. We might wish healthcare reform could simply be about caring for our fellow citizens, or developing superior science, or implementing uniform efficiencies. But it’s not.

We have limited time, money, personnel and equipment that can be assigned to this one part of life. And what we spend on healthcare will not be spent on education, housing, food, infrastructure, public safety, and a multitude of other very important priorities. But it is not popular to say that everyone cannot have everything.

What are the crucial questions?
Healthcare reform boils down to how we as a society choose to allocate and assign limited resources in the face of unlimited demands. In reality, resource allocation in healthcare is no different than allocation of other resources, except that it may be more emotional and the consequences of scarcity are more frightening and dire.

The essential questions that no one wants to mention:

How much can we afford to spend as a nation on healthcare needs as opposed to other needs?
How much can we afford to allocate (minimums and maximums) to any one individual/community or group at the expense of other needs?
To what extent will we mandate taxes or fees for some and redistribute these resources to others?
What mechanisms should we use to collect, distribute and deliver services?
Are some types of care more valuable than others?

In general, we are afraid to discuss the basic questions (i.e., how much healthcare is “enough” for a nation or a person?), so instead we complain and fight about the operational questions (who has to pay and who will control everything?).

We cannot debate healthcare under the presumption that there should be unlimited resources for all.

The current legislative debate about healthcare includes more than the usual share of finger-pointing, blame-assigning, and scare tactics. Unlike some topics, healthcare affects every person and accounts for one in every six dollars we spend (1). Huge amounts of personal suffering, daily hassles, business interests and future careers are at stake.

Emotion and personal bias weigh heavily on this topic. Fear (founded and unfounded) arises easily here—and can easily be provoked. All sides have resorted to polarizing terminology to “ignite” their base against the evils of each side with statements that are false, misleading and inflammatory.

So, instead of dealing with the real dilemma of how to allocate scarce resources, we pretend that the problem can be fixed with one philosophy (single-payers will produce more effective treatments, price controls, and higher efficiencies) or another (private insurers will demand competition, squeeze out the fat, and advance care through investments in innovation). We argue about the potential disparities caused by government regulation on one side, or private insurance denials on the other.

Depending on whether you are blue or red, the threat is either greed or over-regulation; capitalism or socialism; win-at-all-cost attitudes or entitlement mentalities. Actually, the biggest threat is this: convincing ourselves that the math can work and we can all have everything we want in unlimited quantities.

So, you decide what kind of reform you want. All we suggest is that you start with the most fundamental questions. How much can we afford to spend on healthcare versus other life needs? And how will that resource get allocated to any given group or person? What is the minimum and maximum? Once you can make that choice, THEN decide who controls the money and the delivery of services.

Until we can honestly address the fundamental questions we are afraid to ask ourselves, the other issues are a convenient distraction.

Our opinion? Our data on healthcare spending suggests that too much is already being spent on healthcare, at the expense of other human capital needs (education and competitive wages as two examples). Every healthcare dollar is a dollar not spent in other ways.

Economists think of allocation of finite resources (for a person or a nation) based on maximizing the marginal utility. In their terms, efficient allocation happens when the value of the very next dollar spent—on anything, whether that is healthcare, food, education or roads—produces the greatest overall usefulness to the recipient(s). When individuals spend their own money, consumption reflects efficient choices reflecting marginal utility. However, when prices of one good are subsidized more than others, marginal utility is artificially high and consumers spend more on it.

When faced with wants that exceed resources, it is imperative that incentives be aligned as closely as possible with high quality, competitive pricing and innovation. This occurs most efficiently with fewer parties involved in a transaction. Consumers of those resources need a shared incentive to consume resources wisely, and providers of the resource need an incentive to compete based on quality and price.

The model for this is best achieved by assigning an amount of dollars to each person, which he decides to spend on his own behalf. This allows each person to define utility and value individually. One can argue where the dollars come from for people in need (employers, governments, other citizens). But our position is that resources should come in the form of dollars (or vouchers)—to be spent as desired—not services delivered and paid for by a third party. Providers should also be able to compete as freely as possible, allowing the types of break-through innovations not seen in highly-regulated environments.

Whether you agree or disagree with our position is not the point. First, we need consensus about how much we can afford to spend.

Why this matters: As reform legislation looms, it is time to face underlying choices that will shape future American generations. What burden are we willing to place on our grandchildren in the pursuit of unlimited medical care today? What other advances will we forsake in housing or transportation or science as we increase our spending on medical care to one in every four dollars? Let us be the brave generation that defined when “enough” is enough, sparking innovation in more cost-effective care, and enriched our society in other ways.
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(1) Keehan S, Sisko A, Truffer C, Smith S, Cowan C, Poisal J, et al. Health Spending Projections Through 2017: The Baby-Boom Generation Is Coming To Medicare. Health Affairs, 27, no. 2 (2008): w145-w155. (Published online 26 February 2008) Accessed August 15, 2009.

The best prevention doesn’t come from doctors, it comes from your everyday life. Entry 16 - 2009

2009-08-02T15:32:00.013-06:00

I know someone, Jane, who goes to the doctor all the time. She has every ache, bump, rash or other symptom seen by a physician, usually a specialist. Jane often starts a statement with “my (insert a specialist type like orthopedic surgeon) says….” She is vigilant about regular check-ups and timely screening tests, which in her mind means she is practicing prudent prevention.

The media (and discussions of healthcare reform), often limit their discussions of prevention to activities like check-ups and screening tests. A recent White House stakeholder’s meeting included suggestions from physicians such as: "the best prevention is providing people with health insurance," and that “employers allot a certain number of hours for regular preventative check-ups” (1). So, it’s no surprise that Jane feels this way. She checks and monitors everything (a lot), so that means she is health-conscious.

But, there is more to the story. Jane eats a high-fat, high-sugar diet, does not exercise regularly, she is quite overweight, and takes several medications to manage several chronic issues.

Which set of behaviors will protect her most: her medical care-seeking behaviors, or her own lifestyle? It’s not an either-or proposition. What shape you are in when you arrive at the doctor’s office helps determine how helpful the medical system will be.

Let’s also make a distinction: finding a disease is different than avoiding it. Screening tests—mammograms, blood glucose and cholesterol tests, colonoscopies, etc.,—are methods of early detection. They find problems that already exist sooner. They don’t PREVENT that problem from happening; finding out only prevents a WORSE problem IF you do something with the results. What is important to realize is that there is a lot you can do besides get more medicine.

In the case of high blood pressure or high cholesterol, tests that FIND the problem are not preventive; it means the problem is already there. Then, some sort of action is required to deal with the problem, usually medicines or procedures. Some insurance rules designate medications that TREAT these issues as “preventive,” because they are meant to prevent a future heart attack or stroke (referred to as “secondary prevention”). But, in reality, the problem has already begun.

It is also important to remember that the primary value of early detection is increased survival, not cost reduction. If we catch cancer before it spreads, the person with cancer survives longer on average. If it is found early enough, MAYBE it saves money; but often early stage cancers must be treated aggressively (expensively) to have the best chance of cure. For this reason, early detection should not be considered a pathway to significant cost savings.

But comprehensive reviews of prevention and early detection show that lifestyle, specifically body weight and smoking, far outweighs (pun intended) screening in the avoidance of both costs and premature death (2).

So where does prevention really start?
To me, the first and best steps of prevention are those that prevent the very first problem in a chain of events. These consist of measures that avoid a disease all together.

In public health, this comes in the form of water treatment and sanitation, fluoridation of water, food safety rules, iodine in salt, and vitamin D in milk. In the medical arena, these measures include immunizations, hand-washing, sterilization of equipment, and vitamins during pregnancy.

When you think about it, avoiding unnecessary contact with the medical system, where one experiences some inherent risk, can also be preventive. For example, x-rays and CT scans expose us to radiation that carries a small risk for cancer, and almost all medications carry risk of creating other problems; just listen to lists of possible side-effects given on television advertisements!

Like it or not, we individually have the greatest power in prevention. How we live our lives can prevent more diseases or injuries than any after-the-fact treatment. We all know the way to actually prevent most instances of high blood pressure, diabetes, and high cholesterol is to eat right, don’t use tobacco, exercise, maintain a healthy weight, and manage stress.

One statistic we don’t hear frequently enough is that NO heart attack has ever been documented in a person with who has a total cholesterol reading under 150 (3). Although cholesterol is partly determined by genetics, a great deal is determined by lifestyle. A high-vegetable, low-animal-fat diet, combined with regular exercise and weight maintenance will help most of us, if we are willing to make the effort.

It is also true that people who have pre-diabetes (elevated blood glucose, which can be found in blood screening tests) will reduce their likelihood of getting diabetes by about 60% if they exercise and lose a little bit of weight. If they take a common medication instead, they will only decrease their risk of diabetes half as much (4). It’s just another example of what we can do for ourselves.

What are the first steps in prevention?
Things we can do ourselves, like not taking excess risks, not drinking and driving, wearing helmets when bike riding.

To be clear, early detection can be life-saving. Many screening tests are strongly recommended (5) and useful in improving our survival. Awareness can encourage us to take healthier actions. Finding pre-cancerous skin spots, for example, can prevent progression to more serious disease.
So yes, early detection has its rightful place in high-quality care.

But we mustn’t fool ourselves into thinking these tests can in some way be substituted for everyday behaviors that help us protect ourselves. The goal is to avoid the FIRST issue so we don’t have to prevent the subsequent chain of potential consequences. Getting regular screenings to find problems sooner, but NOT taking control of our own habits, can only get us so far. The medical system may be full of great tools, but we want to avoid needing them for as long as possible.

Why this matters: In many instances early detection has great value, but it isn’t a guaranteed pathway to cost reduction. Early detection finds the first problem, after which we must take action to prevent the next one. Too often we perpetuate the idea that medical treatment is a primary pathway to better health, when we would be better served by emphasizing the opposite. Medical treatment is what we get AFTER a problem develops; NOT needing medical care is what we should strive for. What we do every day—eating, sleeping, living actively—gives us the best chance of delaying the need for medicine for as long as possible.
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References

1. Lee J. Streamed and Interactive at 2:30: Health Reform Stakeholder Meeting with Physicians. The White House Briefing Room Blog; June 18, 2009: Accessed July 30, 2009

2. DeVol R, Bedroussian A, et al. An Unhealthy America: The Economic Burden of Chronic Disease. Milken Institute; July 2007. Accessed July 30, 2009.

3. Springer I. Dr. William Castelli: A Pioneer Speaks Out! Coronary Health Improvement Project. Accessed July 30, 2009.

4. Knowler WC, Barrett-Connor E, Fowler SE, et al. Reduction in the incidence of type 2 diabetes with lifestyle intervention or metformin. N Engl J Med. 2002;346:393-403: Accessed July 30, 2009.

5. U.S. Department of Health & Human Services Agency for Healthcare Research & Quality. Preventive Services Recommendations. Accessed July 30, 2009.

If we ignore incentives, we’re going to need lots and lots of rules. Entry 15 – 2009

2009-07-19T13:56:00.007-06:00

Rule: a prescribed guide for conduct or action; a regulation or bylaw governing procedure or controlling conduct (1).

Recently I read a sick leave policy that was six pages long. It was very thorough, describing what constituted illness, how the illness would be verified, how long the person had to notify the company of an absence, and many, many more rules. Although the following words were not written on the document, it was clear: “We are worried employees will misuse this policy, so we are trying to imagine and close every loop hole we possibly can.”

Coincidentally, this was the same day the news began reporting on a new regulatory framework for financial institutions: trying to avoid a repeat of factors that contributed to the current recession. It got me thinking about how the need for more rules is a clear and early sign that ANY system that is missing a natural balance of incentives will require excessive guidelines to KEEP PEOPLE from doing exactly what the system encourages them to do.

Why do we have rules anyway?
Of course some rules are necessary, and intuitively designed to keep us from harm, such as: ‘No running with scissors!’ Or ‘Don’t ever touch the hot stove!’ In other words, some rules protect the young from consequences they cannot fully understand, or protect us from dangers we may not be aware of.

Other rules are intended to protect others, such as setting speed limits on roads, or setting building requirements for how strong a structure must be.

While these rules make sense, too often we find ourselves spending extraordinary time and money devising and enforcing rules that are only necessary because we created a poorly-designed system in the first place.

If we require lots of detailed rules, was the system misaligned to begin with?
Whenever you see a long set of rules, or a call for significant new regulation, it probably means the system has created incentives that remove real-life consequences and accountability from the decision maker. Remember, we all make decisions based on incentives; if we believe a certain action will harm us or those we love, or is not worth the cost, we simply won’t do it unless coerced. If a behavior has significant benefit to us, and little or no risk or cost involved, it is more likely we will do it.

Take the case of the financial industry. Over the past decade, some workers were rewarded handsomely for achieving quick, though risky, returns without being held accountable for the long-term solvency of the firm. Where a generation ago, lenders retained mortgages for their full terms, in recent years high-risk mortgages were sold off so that others carried the risk of failure. Without the threat of future losses (decision makers removed from accountability) closing any loan—no matter how ridiculous—became the goal. However, if the individual granting the loan retained (even a small amount) of accountability for its successful repayment, risk-taking dropped substantially.

In the case of the very complex sick-leave policy, the intention (as we discussed in the previous blog) is to protect individuals from a loss of income when they become ill. However, when employees bear no financial accountability for their absence and have no other way to gain value from paid days-off, the misaligned incentive actually encourages people to be absent when they are not ill. Naturally, it takes a lot of rules to keep people from misusing time off when the incentives promote just that.

Incentive alignment reduces the need for rules.
A perfectly aligned business arrangement reduces the need for rules. In the simplest example, pay-for-performance eliminates the need for a large portion of work rules. If my compensation is only a commission every time I sell your product, or a fee for every task I complete, there is less need for rules about what hours I work, where I work, or how I do my work. In many cases, rules about work hours and work location result because the employer pays workers for time instead of output.

So, it isn’t surprising that there are rules to make sure people complete the necessary hours, when almost no rules would be needed to pay them on output instead. Strict regulations about how work resources (phones, vehicles, equipment) are used become less necessary if employees bear some accountability for operational costs, or profit. When wasteful spending affects one’s own bonus, abuse drops off quickly.

In our company, there are only two rules about time off: let someone know as far in advance as you can and check with others to see that responsibilities get covered. That is because we have no paid-time-off. Instead, we are paid the value of paid-time-off in each month’s salary. Within the limits of getting one’s work done, we can then take as much or as little as we want, and it is subtracted from pay. This way, each of us takes the time we need, according to our own value for that time. One can hardly “misuse” a benefit you pay for yourself.

How does this apply to health?
Health insurance is designed to lessen the financial risk of unexpected illness. However, it also protects us from the consequences of our own unhealthy behaviors. Rules about wearing seatbelts and helmets and carrying vehicle insurance have evolved in part because the public doesn’t want pay for severe brain injuries that result from risk-taking. We do this instead of telling individuals that they or their families will bear some responsibility for the cost.

Let’s imagine we (government and employer) started today, putting $2,000 per year in a health savings account for each person from the time they are born. The money is tax free, earns interest, and can only be used for medical care until the person is 70 years old, after which it can be spent or given to one’s heirs. If a serious treatment is needed, the person must pay a real portion of the expense out of their savings first, before insurance or public funds would be available.

By having a direct connection to a funded health account, individuals would have an incentive to find the most cost-effective treatments, rather than assuming that the most expensive option is best. The system would require fewer “rules” governing what will and won’t be covered, because individuals will use more discretion when spending their own funds.

What would be the reduction in health spending made possible just by connecting people to their own health dollars? Right now the country spends $2.4 trillion per year on medical care (2). The Kaiser Family Foundation reports that H.S.A.-qualified plans are priced between 15% and 25% lower (3). If we take the midpoint, this means saving $480 billion per year or $9.6 trillion over 20 years.

The amount saved in rules and regulations now enforced by Medicaid and Medicare fraud divisions? Fraud is estimated at $600 billion per year (4). If incentives were better aligned so that consumers paid more attention, we could conservatively estimate that they would detect and prevent 20% of that amount. In twenty years this would be another $2.4 trillion—a total savings of $12.0 trillion dollars.

The cost? A break even; twelve trillion dollars over the next 20 years that could go into savings account deposits for every citizen. However, half will supplement retirement (after age 70) at a time when social security is in jeopardy—instead of being spent on insurance premiums. And a good portion will cover costs now assigned to Medicare. And finally, the creation of a massive consumer market in healthcare would force incredible efficiencies and innovation that would change the ever-skyrocketing trend we have today.

OK. We know that health savings accounts are not being considered in the current drafts of national reform. And that putting consumers in charge of spending has not been mentioned as a strategy. But in light of the number of rules that ARE in the legislation, maybe connecting people to the real consequences (both good and bad) of their health decisions isn’t a bad idea.

Why this matters: It is common for organizations to apply rules to try and govern behavior. However, many of the behaviors they hope to change are encouraged by the very systems the organization created in the first place. Sharing a portion of accountability and real consequences—even if you give them the money first—helps align incentives and reduce the need for more rules.
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References

1. Merriam-Webster Online. "rule." Accessed July 17, 2009.

2. National Coalition on Health Care. Health Insurance Costs. 2009. Accessed July 17, 2009.

3. Kaiser Family Foundation, Health Research and Educational Trust. Employer Health Benefits: 2008 Summary of Findings. Accessed July 17, 2009.

4. Bennett R. Medicare and Medicaid Fraud Cost Taxpayers Billions. MD Buyline.com; 2009. Accessed July 17, 2009.

Here’s an idea: take wages away from good workers for a benefit most won’t use. Entry 14 - 2009

2009-07-05T17:00:00.019-06:00

Congress is considering a bill that would mandate all employers provide seven days of paid sick leave for employees to care for themselves or a family member (1). There is no provision for workers to cash-in unused sick leave or convert to vacation days if unneeded (2), so the only way to get value from this mandated benefit will be to have seven days of illness in one’s family each year. However, the bill does allow employers to require a doctor’s written excuse for illness absences that last three days or longer.

Like all such mandates, the bill sponsors believe it will protect workers from unfair treatment; one should not be punished when illness strikes oneself or one’s child. Related media stories focus on single mothers being threatened with termination because their children become seriously ill. Inevitably, listeners sympathize and support kinder policies by companies.

Well-intended or not, it will hurt more than help.

It’s important to understand who actually pays for benefits: employees. The drafters of this bill may assume that companies will just add this expense to their existing employee costs, but this is not true. Economic research on the topic confirms that benefits are paid in lieu of higher wages (3). Because this mandate creates costs that fall into the larger category of labor costs, i.e., total compensation, it dictates a trade-off in how workers get paid. In this case, we will all be paid more in the form of sick leave, and less in the form of direct pay.

In other words, you will be paid less for the days you do work to cover the expense of paying you while you’re gone. It all comes from the same compensation pie. Seven days is 2.7% of all work days (260). If we simply add these days to time off already offered, the employer now has 2.7% of compensation no longer available as wages or bonuses. If these seven days are substituted for vacation, workers now get seven fewer days to use as they wish, and must actually be sick (or fake an illness AND provide a doctor’s note for up to seven days) to get the same total compensation they are earning today.

Mandated paid time-off doesn’t help employees, companies, or national healthcare costs.

Doesn’t help Employees: Looking at it objectively, it is already bizarre that employees let employers decide on their behalf exactly how many days they should work and not work. Across the country, employers tend to allot all employees the same amount of leave, and in ‘use it or lose it’ circumstances, punish those who don’t take enough time off. In reality, there is no perfect amount of time off that fits everyone. Needs for time off vary across people, life stages, and circumstances; only each person can decide what he needs.

Doesn’t help Companies: By its very definition, paid time-off means that companies are paying rewards to employees who are not working. This expense returns little to no value, because the company pays the cost of wages, but forfeits the productivity that would have been produced by those wages. Instead of paying wages that produce output, the company applies the same wage for no output.

Doesn’t help manage national healthcare costs: Because the mandate requires people to take time off for illness (or alleged illness) without option to cash-in unused sick time, we create a situation where it’s in the employee’s best interest to be sick AND to file extra healthcare claims to justify our paid time off. Doctor’s don’t mind writing notes for these circumstances, because they can charge for the visit. Now we’re billing the healthcare system even MORE for costs that may not have required a doctor’s care to begin with.

An additional side effect is the likelihood of additional testing and prescriptions that result from added doctor visits. Because doctors will make efforts to diagnose and treat what might be wrong, excess utilization will result.

So how many people today use seven days of sick leave?
I estimated (4) (using a modeling tool available to the public, check it out on the web if you wish) how many days of sick leave or disability workers are expected to have when sick leave is available. I used a population with an average age of 40, an average annual salary of $50,000, distributed around the country. As you see, 85% of people are expected to have five days or fewer, and our experience is that most will have two or fewer. (Click on the graph to make it bigger and clearer.)

What this means is that if employers are required to provide seven days of sick leave, 85% or more of employees will NOT use all seven days, but WILL forfeit the wages used to pay for the benefit. Sadly, those 85% of workers who do NOT use seven sick days are most likely the ones businesses want to reward.

What alternative fits the Health as Human Capital paradigm?

Two possible alternatives:

1) Give employees an option for seven days off (although don’t require them to be sick), and allow them to cash-in any unused days at the regular rate of pay.

2) If we wanted to give workers an option to take more time off, why not give them the money up front and allow each to decide? Define the full amount available for compensation, and what each day is worth if you work every day. Allow workers to “purchase” as many days as they want for that daily value (up to a max given business requirements).

An example: Let’s take a worker who earns $50,000 in salary. Average time-off benefits (assuming a typical 25 days off in combined sick and vacation leave) amounts to an additional $4,800 per year. Instead of mandating that the employee be gone to receive full value, pay the employee $54,800 in wages, and let the person take AS MANY unpaid leave days as they want, minus $211 in wages per day-off taken ($54,800 divided by 260 weekdays = $211). No matter the personal choice, the company gets full productivity value for wages paid, and the employee can take as many days as he wants depending on his needs without the risk of having the employer reduce wages to cover the cost of the mandated sick leave benefit.

This way,

The worker can meet his or her own needs.

Healthy workers are not forced to choose between forfeiting compensation value, or lying about illness.

Employers are not encouraging extra use of healthcare to verify appropriate absences.

Employers and government stop applying a one-size-fits-all rule to what constitutes the “right” amount, and type of time off.

Employers align compensation with health and attendance.

The absurd role of third-parties (deciding what is best for others) goes away.

Think twice before you mandate protection for everyone; you might just harm the healthy majority while you subsidize the few.

Why this matters: Everything is a tradeoff. Giving more of something—like sick leave—means there will be less of something else. Seven days of sick leave means hiring one fewer worker out of 50 workers…or paying lower wages…or less training…or less vacation…or lower bonuses. The most efficient way to meet individual needs is through individual choice, not by top-down requirements that may do more harm than good.

References
1. Greenhouse S. Bill Would Guarantee Up to 7 Paid Sick Days . New York Times. May 15, 2009:(Health: Money & Policy). Accessed July 3, 2009.

2. U.S. Congress. Senate. Healthy Families Act, S.910, 110th Cong., 1st sess. March 15, 2007; Accessed July 3, 2009.

3. U.S. Department of Labor, Bureau of Labor Statistics. Table 5. Private industry, by major occupational group and bargaining status. May 10, 2009; Accessed July 5, 2009.

4. American College of Occupational and Environmental Medicine. Blueprint for Health. 2009. Accessed July 3, 2009.

When you recover from the economic storm, will your top performers still be there? Entry 13 – 2009.

2009-06-21T16:37:00.007-06:00

As companies look for ways to cut back in a tough economy, many are freezing salaries and limiting bonus eligibility. While this may seem prudent and logical, performance rewards are the last thing to limit if you intend to retain top performers.

With the exception of sales positions, senior executives, hedge-fund managers, and the top dogs at AIG, top performers are already notoriously under-rewarded in U.S. businesses. Compared to base salaries, most companies allocate few resources toward rewards for individual performance. Because companies do a poor job of rewarding performance, those producing exceptional value for a company, paradoxically, will be penalized most by a lack of pay-for-performance. This is partly because it is hard to measure some aspects of performance, and partly because many companies choose an egalitarian approach to rewards; e.g., “it’s really a team effort.”

So, who will notice (and possibly resent) a lack of bonus and salary increase the most? The best performers, that’s who. It’s worth revisiting an example where 100% of top performers left an organization within four years if their financial rewards did not reflect their superior performance (1). On the contrary, 90% stayed, if their pay reflected their performance. Promotions (with no pay increase) did not cause them to stay. On the contrary, middle and low performers were not as sensitive to having financial or other recognition.

Now, a study comes from Clemson University showing that top performers have high engagement, but engagement is NOT the same as corporate loyalty (2). What this study implies is that top workers are highly engaged in the work they do, not necessarily committed to the company for whom they do it. The author points out that top performers need recognition as well as adequate resources to do their jobs well. The article suggests that top workers want an environment that enables their natural drive to succeed. It could also be that engaged workers have a better sense of their own value, and will be more likely to seek alternatives when undercompensated.

If companies want to emerge from the current downturn with optimal strength, their focus needs to be on encouraging and retaining high performers.

Who has the highest job mobility?
Let’s look at the data: when a company offers a voluntary separation package, who leaves? Is it the low performers, who know their time and opportunities are limited anyway? Or is it the top performers who have the most employment options? I have heard both arguments.

The answer: both. If you rank performance from 1 to 10, our data show that in cases of voluntary separation, the ones, twos, nines and tens accept departure from the firm in the first few months, leaving those ranked from four – seven most likely to stay with the company. From a human capital perspective, those who have the best skills and highest motivation will have the most options…which includes leaving their current positions for better opportunities elsewhere.

So, where should companies save money?
Instead of paring back rewards for performance, this is the time to share more responsibility for company expenses unrelated to job functionality (benefits and so-called perks). While I have heard benefits professionals say that this equates to “kicking employees when they are down,” we respectfully disagree.

The most productive workers – not coincidentally – use fewer benefits than other workers on average. Think of it this way: people who enjoy their work do everything they can to get back to work after a health episode. And, in keeping with a health as human capital paradigm, research shows that people who feel rewarded and successful at work do more to protect their health (3).

As such, high performers are least likely to use extensive time off, least likely to worry that disability coverage is only 80% of salary rather than 100% of salary, and most likely to appreciate the ability to trade in unused time off for some extra cash. Top performers like their work, and probably selected their job based on the career opportunities – rather than for the benefits package.

Plus, funds can be realigned into areas that reward both good performance and encourage stewardship of benefits resources.

Increase health plan deductibles and place any premium savings into health savings accounts.

Offer bonuses back to employees as a group for reduced workers' compensation payments.

Offer performance bonuses in the form of gain-sharing on greater-than-expected revenue (which will only be paid when and if such revenue arrives).

Offer cash-back on unused paid time-off, so employees have an option of working more and earning more.

All of these examples are trade-offs instead of take-aways. They reflect an effort to share responsibilities as well as rewards. Those most likely to gain from the trade-offs are the ones who take care of themselves, work effectively, and spend resources carefully. And, isn’t that the way it should be?

Why this matters: There are many ways for businesses to spend less. However, each choice will have consequences. While it is tempting to pay people less while maintaining rich benefits, this approach will disproportionately affect those a company most wants to retain: top performers. Instead, organizations should consider ways to keep – or creatively invent – new mechanisms for rewards. If cutting back is unavoidable, look for tradeoffs on benefits unrelated to work performance.

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References

1. HHCFoundation.org. A study of what makes high performers stay. Entry 10 – 2006. Accessed June 21, 2009.

2. Clemson University Newsroom. Engaged employees are good, but don’t count on commitment. Posted May 13, 2009. Accessed June 21, 2009.

3. Schaneman, JL. The Relationship between Benefit Spending, Health Protection, and Variable Compensation. American Occupational Health Conference, San Diego, CA. April 28, 2009.

A “Culture of Health” – It’s more than a checklist. Entry 12 - 2009.

2009-06-08T07:21:00.005-06:00

Every year, a new catch phrase becomes THE focus of corporate health. This year that phrase seems to be the “Culture of Health.” At almost every conference and corporate benefit presentation, a ‘culture of health’ is the gold standard all employers must strive to achieve. And why wouldn’t everyone want to?

But by what measure?
Disappointingly, more often than not, ‘culture of health’ is a term used to justify existing programs or sell new health-related activities. This thinking implies that how many health-focused activities a company sponsors, or how many health-conducive facilities they have determines whether there is a “culture of health.” I saw one presentation that defined it as a list of programs and facilities (everything from a fitness center, to healthy options in a cafeteria, to well-lighted stairwells, to weight-loss counseling), without mention of participation rates, results, or return on investment. This company is regarded as an industry leader, which means if other employers want to keep up, they’re going to need more checks on their list of health programs and activities.

Two things bother me about this year’s catch phrase: One, we’ve reduced the concept of culture to a single dimension (and coincidentally, only the dimension a company can buy). Two, it is a distraction from the real goal: productive employees and company success.

While external environment and supportive resources play roles in health promotion, can we really equate activities and facilities with culture? A definition of the term from Webster’s Dictionary:

Culture: The set of shared attitudes, values, goals, and practices that characterizes an institution, organization or group; and that members use to cope with their world and with one another.

Scholars who study culture point out that culture itself is not observable, and can only be studied indirectly. It’s not simply WHAT people do, but WHY they do it, and what they BELIEVE about it. It’s not the items they own, but what those items signify. Culture is much more about the meaning of what we do, than about doing.

A “culture” that truly values human capital is one that rewards work achievement, shares savings when efficiencies are achieved, and provides significant opportunity for employee advancement. It values all human capital assets and encourages growth through aligned incentives. Employers can make SKILLS, MOTIVATION and HEALTH all more valuable by making sure that employees receive clear rewards for good work and clear savings from protecting their human capital, and never purchase a single health program!

It is a mistake to isolate health—as if it operates separately from skills and motivation—or to make it the end, instead of a means for a successful career and life. (There is a wonderful World Health Organization statement that describes health as: “a resource for everyday life, not the objective of living.”(1))

When we reduce discussions about adopting a ‘culture of health’ to a checklist, we miss the point. In fact, companies cannot buy culture with things and programs. Can we buy a “culture of learning” simply by building more schools and offering more classes? Can we buy a “culture of economic responsibility” by training everyone to understand interest rates and budgets? Of course not. These activities provide tools and opportunity, but they do not MAKE culture.

No, culture comes from continuous reinforcement, encouragement, acceptance, and rewards that confirm what is (or should be) of collective value to the individual and the organization. Interestingly, the same company that presented the extensive list of health programs and activities also has overarching policies that discourage wellness, such as:

Extensive pressures on leisure time of employees. Leisure time is a significant predictor of participation in healthy behaviors. Severe infringement on personal time—or implying that a defined work day shows a lack of dedication—while asking people to prepare healthy foods and exercise, is not a culture of health.

Limited opportunity and dead-end jobs. Motivation in one’s job carries over into life. Without optimism for a better future, self-improvement has less meaning. Under-investing in skills and capacity, while asking employees to improve their management of disease, is somewhat incongruous.

Keeping instead of sharing savings. Employees understand that health improvement efforts are often driven by a company’s desire to save money. Will employees share in any of those savings? If there is no shared economic return—bigger bonuses or bigger health savings account deposits—is this a culture of health? Or is it simply a thinly-disguised cost-saving effort benefiting only the firm’s owners and management?

Do we send mixed messages?
Too often, I see executive support for health expressed in an unrealistic way. A CEO will say, “We care about you and want you to take care of yourself,” while also reminding workers that he works at least 80 hours per week and STILL does a five-mile run every day. He does not mention that he has hired assistance at home to do his shopping, fix healthy meals, care for his children, and keep his household running smoothly. He also has ultimate flexibility in his schedule.

Today more than ever, the currency of healthy living may be time. And the best encouragement may be an obvious, regular practice of healthy behaviors by leadership. Having convenient tools, facilities, and resources will not add another hour to a person’s day. Nor will it change unwritten rules about getting in early or staying late.

Which brings me to concern number two. Distractions from the end-game: productive employees and a successful business.

The usual goal of a business is to deliver quality products and services and make money doing it. Companies hire workers to help accomplish this goal. Ideally, those hired are maximally productive and able to generate more value than they are paid (a requirement to make a profit).
The primary purpose of business is NOT to keep employees healthy. Sure, it’s a means to an end, but really, when you think about why businesses are created—to make and serve tasty meals, to deliver landscaping services, to design graphic artwork, whatever—we shouldn’t expect that worker health improvement is the reason for being in business. Secondarily, as a part of a human capital-building environment, employers want employees to grow their skills and abilities not because it is employees’ duty or mission, but because human capital assets contribute to business success.

Before you jump on the “Culture of Health” bandwagon, ask the following:

Can employees earn significantly more for high achievement?
When health care and work absence spending go down, do employees share the savings?
Do employees have proven and visible opportunities for significant career advancement?
Is there significant investment in training?
Is the work day clearly defined to allow schedule flexibility and leisure time for healthy activity?

THESE elements reflect a true culture of well-being and respect for human capital, not whether a company has a program for every disease or risk factor an employee might experience.
If workers don’t gain from better performance and lower costs, why should they believe the company truly values their well-being (as opposed to simply wanting to make more money by cost cutting)?

Re-think the checklist.
If you look, you will see that those advocating most loudly for a ‘culture of health’ are those trying to sell more services. You will also see that the ever-lengthening checklists focus on more programs and services rather than on taking a hard look at how workers are rewarded, trained or treated.

Human capital growth, rewards for achievement, shared savings, respect for individual needs, and recognition for accomplishment are all proven to produce both improved health, and business results too…without a checklist.

Why this matters: Not every well-intended trend is a worthwhile investment. Remember, every dollar spent adding programs (health-focused or otherwise) is a dollar NOT spent on salary, bonus, or training. Make sure it is a dollar that truly encourages and rewards achievement and capacity growth, for the benefit of company and worker alike.

__________________________________________________________________
References
1. World Health Organization, Regional Office for Europe. Ottowa Charter for Health Promotion, 1986. Last updated April 1, 2006. Accessed June 5, 2009.

Twenty years later…let me explain the ROI of better information. Entry 11-2009

2009-05-24T15:54:00.003-06:00

The first time I suggested to an employer that they put all their data in one common database was in 1989. I was a university professor focused on research then, and was advising managers in HR and benefits about healthcare costs. I drew a hub and spokes, showing how we could take a variety of data sources from around the company and put them all in one central place. This way everyone could better understand what was going on in the workforce.

Their reaction could best be described as a blank stare. “Why would we do that?” they asked.

Little did I know that over the next two decades, I would hear the same question, literally hundreds of times. It comes in many forms:

Q: What is the guaranteed value of integrated information?

Q: How do you KNOW ahead of time that resources spent on data integration (and the resulting ability to see things in new ways) will produce something that is worth more than the cost of the investment in such integration?

Q: Can you show me exactly what we will gain?

Since I continue even today to get “the ROI question,” it is obvious that I have been less than successful in convincing people of the value of better information. Very often, organizations skip or delay “the data integration project.” No fewer than thirty times have I watched organizations decide instead to invest in ACTIONS (programs, facilities, surveys, or tangible items) that others can see. They choose doing over knowing; more action over more information; more visible over less obvious. And usually, it is an investment that costs much more than the data integration would have cost.

Being a data-oriented, research-minded person, I admit I was initially stunned by questions about the value of integrated information. To me, asking whether a company should invest in integrated information is like asking:

Should we invest in a map before we leave on our trip, even though we think we know the way?
Should parents invest in education for their kids when they aren’t exactly sure of their children’s future careers?
Should we install a gas gauge in the car even though we have a pretty good idea about when we last filled our tank?

In all of these cases, we cannot state ahead of time EXACTLY how we will get value from these investments, but we will almost surely be better off, and may actually save ourselves from significant hardship.

I have never given this answer out loud before: Yes, I am absolutely, 100%, positively certain that having useable information in an integrated, person-centric database will provide more value than it costs. (Certainly, there are basic caveats around a reasonably-priced data solution and your company staying in business for the next 12 months, etc.). Further, AFTER you have integrated data, you will realize 100 more reasons it adds value than you could think of before hand.

What do I mean by integrated data? I mean regularly-updated information—combined at the level of each worker—regarding each job (how much workers accomplish, how much and in what ways they are paid, when they start and quit, who they report to, what training they receive, etc.) and regarding their use of employer–sponsored services (health insurance, time off, workers’ compensation, disability insurance, health interventions, etc.). This level of data allows us to extract meaningful outcomes that impact business performance.

Sure, some people simply dismiss my enthusiasm because I a) chose research as a career path, b) like numbers, c) had scientists as parents, and d) have almost always worked in companies where data analysis was an aspect of business. All true, but these aren’t the reasons I believe successful organizations require integrated information.

Because people rarely inquire about my enthusiasm for the power of information, here’s my chance to answer the question no one seems to ask: “What is it about information that’s so valuable to any organization?”

 Seeing the bigger picture adds value as much from what a company does not do, as what it does do. Face it, business leaders (all of us!) often have hunches about the problems they face and the solutions they hope will fix them. As often as we confirm the presumed cause of a problem, we uncover a completely different one. Every time this happens, the company chooses a more appropriate action than it would have taken. When a company puts all the information, both investments and performance, in one place, it’s clear that all investments are not equal. Some yield a return, some do not. Data-driven decisions remove the need for and use of expensive assumptions. This saves money and time spent on ineffective investments.

 Learning what you DON’T know has incredible value. Almost every discovery reported in this blog comes from seeing a pattern in the data that we did not expect. Why is this group so expensive? Why does that division have higher turnover? What happened in the last quarter that caused such a spike in absence? Deciphering the unexpected has led to new, different, more targeted solutions in each case that corrects a problem the company did not even know about.

 The most efficient solutions appear when we take information out of compartments to see how things interrelate. As regular readers know, all parts of a business affect each other. Decisions regarding compensation and paid time-off will influence what happens to healthcare utilization. For example, in the 3-6 months before workers quit, they have a tendency to use more benefits. Another example: workers’ compensation costs differ depending on whether the employees are in an HMO or a PPO. Benefits managers solely in charge of healthcare may interpret a sudden rise in costs as a health-driven problem, rather than a response to other factors. Integrated information allows them to consider all potential causes. That saves money and avoids an ineffective, compartmentalized response to a systemic problem.

 Organizations are living, changing organisms, with both systemic and localized issues that vary over time. Rarely is a “problem” (a source of medical costs, or a pattern of absence) or an “opportunity” (a policy improvement or infusion of resources) uniform across an organization, or across time. Choosing a solution, AND applying it when and where it is most needed, adds a level of efficiency. That saves money and improves effectiveness.

 Monitoring what’s working and what’s changing allows companies to be proactive rather than reactive. Too often, businesses implement new tactics and then wait 12 months (when the next report comes out) for results. Then, it may take another 12 months to choose a new direction and change course. With today’s information technology, companies can and should be watching key metrics monthly, discussing what constitutes a successful or problematic change in that metric, and responding in business time—not vendor-imposed calendar-year time. This saves time, money, and improves the business relevance of all decisions.

 Having integrated information enables integrated planning and execution. When information comes from multiple data sources (medical, pharmacy, disability, workers’ compensation, human resources and other sources), discussions about implications and solutions are necessarily more integrated. With integrated information, for instance, a corporate medical director, VP of benefits and VP of operations can see factors that may be influencing disability—including health- and non-health-related drivers—and can formulate effective solutions. This improves efficiency and avoids redundancy.

 And finally, data for data’s sake is not valuable; actionable information is. It’s not simply about having MORE data—we are overwhelmed as it is—it’s about being able to get answers to questions about how the business works. An ability to use and apply integrated data to make informed business decisions is crucial. Making spending decisions without clear information regarding what is needed, where it is most needed, and an ability to assess what happens afterward borders on business malpractice.

So, yes, I believe that every organization saves time and money many times over its initial investment in integrated data. How exactly? That’s a question only your data can answer.

What happened to the organizations that chose ACTION instead of data integration? Ironically, many of them spoke with me 12 or 24 months later, asking if I could help them evaluate whether their ACTION was valuable. And I was forced to swallow hard and say:

“…well I could, if I had the data.”

Why this matters: (see above)

When a problem goes beyond illness, the solution must go beyond medicine. Entry 10 – 2009

2009-05-10T12:49:00.009-06:00

Trivia Question: The following three questions are part of a screening that is more than 80% accurate at predicting what? (Clue—this is not about life satisfaction or stress).

1) Would you describe your work as monotonous?
2) How satisfied are you with your job?
3) How tense or anxious have you been in the past week?

.....Stay tuned for the answer below.

Ask your mother--context is everything.
We all know that circumstances affect our reactions to specific events. Depending on what “else” is happening at the time, we respond differently to the same challenge. On some days big obstacles are manageable, while on other days a tiny hassle seems insurmountable. Most kids know that having a tummy ache is a good way to avoid difficult circumstances, such as a quiz they aren’t ready for, or a bully at recess.

Sometimes it takes a mother’s intuition to tell whether the ailment is caused by eating too much licorice and pickles or mostly from the dread of facing something at school. But the reality is that the tummy ache and the desire to stay home are both very real. And the “cause” is multifaceted: a combination of health (upset stomach), skill (not knowing how to work through challenges or disagreements), and motivation (natural desire to avoid discomfort).

We can label it a stomach problem, but moms know that the medical solution (i.e., Pepto Bismol) may not completely address the problem. Moms also know that tummy aches rarely happen on the same day as the school field trip to the zoo. Context matters.

Human capital issues in the workplace also have a context.
Each of us has human capital that consists of three assets: skills, motivation and health—each operating within the context of the other two. These assets are personal, owned by the individual, and change throughout one’s lifetime. The currency of human capital—how we SPEND it—consists of time, energy, and attention. A person applies his or her human capital by devoting time, energy, and attention to the activities and challenges in life and work. We apply skills, motivation, and health (in combination) in every waking minute of every day. In the workplace, we ask workers to spend their human capital in ways that add value to the organization.

Although we often identify each asset separately, they are almost never independent. When our motivation is low, it’s harder to apply the usual level of wisdom and skill. When our bodies are sick or injured, we don’t just lose physical functionality, but often enthusiasm and endurance as well. With very few exceptions, we cannot isolate a single asset (only skill, or only health) as the cause of better or worse performance, because they are so interrelated.

None of this is surprising, so why would anyone disagree that medical costs and illness-related absences are functionally related to and intertwined with skill and motivation factors?

Recently I listened to a group of corporate health professionals planning expansion of their programs to cover more chronic diseases and more risk factors. Their ultimate goal was to reduce medical and absence costs. My opinion was that until their company fixed its context—rewarding and appreciating skills, aligning incentives for higher motivation—spending more money on efforts to “fix” health problems would be largely ineffective.

But they insisted that the problem causing high healthcare costs was all medical—ignoring the complete human capital context. In their paradigm, what employees needed was calls at home and reminders to take their medications and get the right tests. They were missing the point.

Which brings me to an unusual treatment protocol: that includes context!
Remember the questions above?
1) Would you describe you work as monotonous?
2) How satisfied are you with your job?
3) How tense or anxious have you been in the past week?

These questions are part of a back-pain assessment tool used by providers in New Zealand to predict who will be out of work for 30 days or more (1, p. 39). The assessment (which has 24 questions in total) produces a score that is 83% accurate in identifying people who will be away from work more than 30 days and 75% accurate in identifying individuals who will need no more follow-up after their initial assessment.

The complete assessment starts with a series of questions ruling out severe physical problems (e.g., paralysis), then goes on to ask about psychosocial issues, like how they perceive their success, their functionality, and their pain. Using the structured questionnaire, or by having a dialogue (which also includes questions about financial incentives), the provider can assess a person’s risk of extended absence and work loss.

This comprehensive protocol offers suggested messages to help the patient improve, which also includes guidance about what NOT to do (such as get additional tests, take narcotic pain killers or default to bed rest). The guideline is refreshing because it acknowledges that sometimes presumed medical problems are not appropriately solved with exclusively medical answers. It reminds practitioners that:

The human body will most often improve on its own within 4-6 weeks.
Absent specific physical signs and injury history, tests will not help.
Regular activity is actually therapeutic.
Psychosocial risks are not the same as malingering.
Prevention has a CONTEXTUAL component.
Caregivers can help prevent social and financial consequences as well as physical ones.

In their document, the New Zealand Guideline Group states:

"Long-term disability and work loss are associated with profound suffering and negative effects on patients, their families and society. Once established they are difficult to undo. Current evidence indicates that to be effective, preventive strategies must be initiated at a much earlier stage than was previously thought. Enabling people to keep active in order to maintain work skills and relationships is an important outcome."

This approach shows commitment to caring for all three aspects of human capital while protecting a person from unnecessary loss of valuable assets. By respecting the value of future skills and motivation, health remains in its proper context. Plus, by addressing a person’s real issues and avoiding unnecessary medical care, we have a win-win for everyone involved.

Why this matters: It is easier to define health problems in medical-only terms—where something is broken and can be fixed with a medical treatment. Often, providers, employers, and patients would rather keep it simple because context is messy and more difficult to solve. But unless we are willing to acknowledge that discomfort and misery rarely have single causes, we will continue to spend unnecessarily on ineffective, mechanistic solutions when what we really need is something or someone that values our total human capital and helps us find the right pathway to feeling better about health, as well as life and work.

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References
1. Accident Compensation Corporation. New Zealand Acute Low Back Pain Guide. New Zealand Guidelines Group; 2004. Accessed May 7, 2009.

Ten misaligned financial policies that communicate the wrong message to employees. Entry 9 – 2009

2009-04-26T19:29:00.004-06:00

Pay is probably the most powerful communication tool an employer has.

A book on compensation that I read recently explains very clearly how rewards (all pay, benefits and recognition) deliver the clearest message to employees about what is important to the company, and what the company wants from them. The authors remind readers that "few things get the attention of people in a company as well as pay does (1)." This got me thinking that companies “say” many things with money.

Pay—depending on how it is designed—can put employers and employees on the same team, or make them adversaries. It can encourage the top performers, or protect the worst ones. Money talks. In fact, if what company leaders say in words is contradicted by their pay policies, it is more likely that employees will “hear” and respond to the financial message more than the verbal or written one.

Ten Financial Policies that Communicate the Wrong Message to Employees

Because we often talk about mislaigned policies with corporate decision-makers, it occurred to me that many common approaches to pay and benefits deliver the wrong message. As examples, here is a list of ten financial policies and what they actually “say” to employees:

1. Policy: No bonuses, or standard bonuses for all.

Translation: Top performers are not of any higher value to us than those who perform the worst.
Impact: Our data show that performance suffers in environments without performance-based rewards. Also, high performers are more likely to leave jobs when they are not rewarded for performance. When the financial policy ignores performance, the message is: a) we don’t care how well you perform, and b) if you want to be paid for excellence, go somewhere else.

2. Policy: All pay is based on attendance, not output.

Translation: Face time is more important than work output.
Impact: Like Policy #1, when time is used as the proxy for productivity, we see lower production (in the same amount of time), and higher turnover in top workers. Further, team morale and employee quality of life suffer when workers compete to be seen working early or late. If time is what earns pay, workers will focus here first.

3. Policy: Unlimited sick time (yes, this still exists), 100% pay during disability, and use-it-or-lose-it plan designs.

Translation: You are worth as much to us when you’re home sick as you are when you’re working.
Impact: When workers earn the same amount of money whether they work or not, it sends a message (intended or not) that absence and work have equal value. And, when there is no personal loss for lost time (or potential gain for not using lost time—such as cash-back for unused time), workers make sure they use the time. The development of paying people for NOT working (which evolved in the 1940s) delivers a contradictory message about the essence of “a day’s work for a day’s pay.” There should be a shared value to both parties that reflects being at work.

4. Policy: A combination of no performance-pay, with rich medical and absence benefits.

Translation: We pay our sickest people the most.
Impact: When bonuses are sacrificed for health-related benefits, the workers who get the highest total compensation are those who use the most health services. A sick person will get full pay, time away from work, and potentially hundreds of thousands of dollars in medical services. The well person gets their regular base pay—and no more.

5. Policy: Paid vacation.

Translation: You may not be at work, but we’re still paying for your time…you still have obligations to us.
Impact: Many professionals are discovering that “vacations” are no longer protected when it comes to email and conference calls. Time off just becomes work relocation, and employees don’t have the full opportunity they need to recharge. Personal and family resentment toward the company can also result from corporate encroachment on personal time.

6. Policy: Participation incentives for enrolling in problem-focused health programs (without similar incentives rewarding low-risk people).

Translation: We don’t have much for people who take care of themselves, but if you’re unhealthy or high risk, we’ve got tons of resources for you!
Impact: Partly because legal rules prevent companies from designing incentives around ideal weight, low cholesterol and blood pressure, some employers pay for program participation instead of rewarding outcomes and continued health. Meanwhile, the employees who have been, and continue to stay healthy on their own often have access to far fewer resources and rewards.

7. Policy: Employees are charged the same amount regardless of whether they are covering only themselves, a spouse or an entire family.

Translation: People with spouses and families are worth more/receive higher compensation than single people (who subsidize their fellow employees with spouses and families).
Impact: While it is understandable that employers want to be family friendly with their policies, there is an inherent inequity in subsidizing/over-charging single workers and those in non-traditional relationships to afford such policies. As such, there is an inherent value statement about the value of single employees.

8. Policy: Rich medical benefits but limited investment in training and development.

Translation: We’d rather pay for your illness than invest in you and your career.
Impact: The employees who are attracted to the company, and who stay, will be those who place more value on benefits than career growth.

9. Policy: No profit sharing.

Translation: We are not on the same team. Regardless of how the company does, your situation will not change.

Impact: Employees who feel they have little connection to company success are less engaged in being productive and protective of corporate assets. This communicates an us-versus-them mentality.

10. Policy: Avoiding options that give employees decision latitude (e.g.consumer-directed health options, PTO banks, or variable-pay options).

Translation: We don’t trust you to make good choices with your own money.
Impact: We have actually heard employers and policy-makers openly admit distrusting the decision-making capacity of their employees when discussing options such as high-deductibles, bonus-pay options, or reduced pay during disability. This role is more paternal than is fitting for an employer, encouraging a relationship of dependency rather than partnership with employees.

Ten Ways to Re-align Incentives to Encourage Improved Outcomes
How do we “rephrase” our financial messages? Listen to how these new policies get translated when they are aligned with positive business goals.

1. New Policy: Noticeable and clearly understandable performance-based pay.
Translation (Instead of): High performers are of equal value to us as low performers.
(Aligned): Your success is our success, and we share that.

2. New Policy: Performance metrics are tied to results, not time.
Translation (Instead of): Face time is more important than work output.
(Aligned): It’s what you accomplish that matters most.

3. New Policy: Good: A PTO bank. Better: Less than 100% pay during time off.
Translation (Instead of): You are worth as much to us home sick as you are at work.
(Aligned): We share a mutual interest in your staying healthy and getting the care you need.

4. New Policy: Significant performance-based pay that is forfeited when absent. Less than 100% pay during Short-Term Disability.
Translation (Instead of): We like to pay our sickest people the most.
(Aligned): Being at work and productive is what we value most.

5. New Policy: Consider paying a higher rate for time at work, and less or no pay for absence. This draws a clear distinction and puts employees in complete control of their time away.
Translation (Instead of): Officially you are still on the clock, so maybe you should be available on your vacation.
(Aligned): Your time is your time.

6. New Policy: Rather than chasing health risks, provide an allowance for wellness activities for all. Pay attention to mixed messages about work hours (if you expect a 12-15 hour work day, you cannot also expect healthy behaviors, sleep, and stress management).
Translation (Instead of): We don’t have much for people who take care of themselves, but if you’re high risk, we’ve got tons of resources.
(Aligned): Staying healthy is of value to you and to us. (see #3 and #4 above).

7. New Policy: Examine pricing to see if it generates equal value for all.
Translation (Instead of): We use single workers and couples to subsidize services for employee families.
(Aligned): We respect everyone’s life choices and charge employees premiums that directly reflect their status.

8. New Policy: Shave costs off of health care, using a high-deductible plan. Re-invest in meaningful skills training.
Translation (Instead of): Health/illness is more important than career advancement.
(Aligned): We are dedicated to helping you advance your career.

9. New Policy: Practice profit-sharing, with regular updates about company performance.
Translation (Instead of): We are not on the same team. Regardless of how the company does, your situation will not change.
(Aligned): Your work matters. If the company does well, so will you.

10: New Policy: Put more money and more options directly into employee control. Allow employees to make choices about healthcare, time off, and work tasks.
Translation (Instead of): We don’t trust you to make good choices.
(Aligned): We trust you at work, and believe you own your life decisions.

Ask yourself what messages employees really “hear” in the way your organization spends money. And consider whether that is what you meant to say.

Why this matters: Spending indicates priorities. When company leaders say in words that “employees are their great asset,” or that they “value learning,” or that they “value hard work and innovation,” workers want to see employers walk the talk. If a company truly wants to reward and keep its best workers, encourage career advancement, and reinforce good health, spending patterns must confirm the message.

________________________________________________________________

References
1. Zingheim PK, Schuster JR; Pay People Right! Breakthrough Reward Strategies to Create Great Companies. San Francisco: Jossey-Bass; 2000, p. 4.

Do we have it backwards? Should we invest in health to get productivity? Or reward productivity to get better health? Entry 8 - 2009

2009-04-12T09:21:00.004-06:00

An interesting study completed last year should make us all reconsider our typical assumptions about how to improve community health. In short, the study found that communities that experienced a significant influx of jobs and economic opportunity not only had expected improvements in their standard of living, but also increased their practice of healthy behaviors, had improved physical and mental health, less chronic illness, lower reported disability, and felt better.

This unique, natural experiment compared tribal populations before and after they opened casinos, to similar tribes who did not have economic development from casinos (1). Those not opening casinos certainly received attention and programs emphasizing tobacco cessation, eating right, taking care of one’s self, and dealing with mental health. But significantly greater health improvement happened when economics improved.(2)

This conclusion is the reciprocal dimension of what we often hear: “We need to improve health, so people can do better at work.” Instead, the lesson here was: “When people have an opportunity and a reason to succeed in work, they take better care of their health.”

Perhaps these results are not surprising, but they have significant ramifications on health spending today. Not everyone is ready for findings like these, but they play out in our research time and again. People who have a reason to be at work, and who are well-rewarded for their work—on average—take better care of their health than those who do not:

Workers eligible for larger bonuses report that health is more important to their careers.
Workers eligible for bonuses and overtime are twice as likely to get a flu shot than those not eligible.
Larger bonuses are correlated with less smoking or lower BMI, independent of salary.

Why is it so hard to change our understanding about what drives health? Because it might change the way we make our living.

When I was challenged five years ago to think differently about health, it took me a while to let go of my old paradigm. It was uncomfortable to question a deeply-held set of assumptions about health and health behavior. But the evidence grew too compelling for me to ignore. Although I worried that this new approach would threaten my relationships with mentors and colleagues I’d worked with for decades, eventually the fear was outweighed by the discomfort of knowing I was perpetuating a flawed approach.

I could no longer support ever-expanding budgets for services that correct health misbehavior when that same money was being taken away from individual salaries and performance rewards that also positively influence health.

The old (one-direction) paradigm: invest in fixing workers’ health problems, and they will do better at work.
When I used to operate in ‘health management” or “health and productivity” circles, the primary research goal was to demonstrate how illness and health limitations reduced work output. Most research during that part of my career was supported by businesses hoping to prove that A) employee illness creates a business expense (medical, absence, turnover, and eventually, presenteeism) and B) that spending more on interventions (such as medicines or disease management) will reduce that business expense.

In general, advocates of a medically-oriented, disease-threatens-productivity approach are hoping to get more funding for interventions that will extend life, prevent illness, reduce suffering, increase vitality, and perhaps make a living while doing it. All are reasonable purposes.

And so, all kinds of resources in the form of time, money and effort, have been directed toward getting people to make changes that improve health. Or, if people won’t change, we work on helping them get closer to considering a change—hoping they become more ready. Time and time again, we see companies frustrated because “employees won’t do what they should do.” And recently this has started to provoke even more heavy-handed approaches to making people comply.

But where do hope, responsibility, opportunity and self-sufficiency fit into this get-healthier-and-cost-less-so-you-can-be-more-productive equation? In the case of some Native American tribes, where social problems and unemployment prevail, is there a chance that government attempts to encourage people to stop smoking, improve eating habits and manage depression seem disingenuous?

Is it different in the case of corporate America? Do people work in an environment that makes health intervention programs seem similarly contradictory? In a job where people feel under-valued, high performers receive no additional rewards, opportunities for advancement are limited, job training is scarce, and retirement seems farther away than ever, can health improvement programs be expected to outweigh broken systems and lack of motivation? If I don’t believe that company leaders really care about my life success, why would I believe their interest in my health is sincere?

The new paradigm: reward high performance and invest in human capital, and people will have more reasons to protect their health.
In what we call the health as human capital paradigm, the equation gets reversed. The right incentives create an environment encouraging health protection. First: reward performance, invest in skills, and give people hope and opportunity to succeed. Second: share responsibility for health (e.g., savings accounts, paid-time-off banks). Then, get out of their way as employees protect their health as an asset they naturally value more. Health improvement programs cannot substitute for aligned incentives, and will struggle to be effective among misaligned incentives.

Remember, health improvement efforts divert money from workers’ wages to fund the very services that will try and make them change. So, if workers share none of the direct value for improved behaviors, then the company is sharing cost without sharing any benefit. Instead of asking employees to pay for behavior-change programs, imagine a work setting that makes success rewarding and fulfilling. Imagine growth opportunities that improve life-long self-reliance. Make work excellence something from which workers can tangibly gain. Put success in their hands, and put enough risk in their hands that failure matters too. Allow personal responsibility at work and in schedules. Then, give people the flexibility to care for themselves in the way they need to.

The casino study showed that as people saw opportunity, they changed their health habits. When we have something that matters to us, success we can strive for, a reason to get up in the morning, we have more of a reason to care. Maybe the best health promotion tool in that setting was hope for a brighter future.

Why this matters: Health is just one of three human capital assets: skills, motivation and health. They are connected and affect each other. Having opportunity to use one’s human capital to earn rewards gives us greater reason to improve and protect those assets. The standard medical paradigm has excluded the influence of skills and motivation, insisting that health alone will lead to better work performance. In a tough economic time where funds are limited, spending “smarter” is preferable to spending more. The health as human capital paradigm demonstrates that investing in people’s overall wellbeing is the most powerful step to improving health, and that giving people control over their human capital assets isn’t just in their own best interest, but in the interest of employers as well.

_________________________________________________________________
References
1. Wolfe B, Jakubowski J, Haveman R, Goble H, Courey M. Casino revenue and American Indian health: the link between tribal gaming and the health status and behaviors of American Indians. Paper prepared for the 30th General Conference of The International Association for Research in Income and Wealth: Portoroz, Slovenia, August 24-30, 2008. Accessed April 10, 2009. Cited with permission of the author.

Note
(2) Economists call this the “income effect,” where demand for certain things increases as income increases. These are called “superior goods,” and health factors fall within this category.

How Health Savings Accounts save more than money. Entry 7 – 2009

2009-03-29T15:17:00.006-06:00

Health Savings Accounts remain an underappreciated (and sometimes distrusted) tool. When we at the Health as Human Capital Foundation express our support for HSAs as critical to solving the healthcare cost problem, people often assume—incorrectly—that the primary intent is “cost sharing” or “cost shifting.” Make people pay, so they assume responsibility for the expense. Although paying directly for services does encourage people to spend money more carefully, that is NOT our primary reason for supporting HSAs. In fact, when a well-designed HSA approach is funded to cover the full deductible as we recommend, individuals have no additional cost at all!

Really, the main reason to put money in the hands of consumers is to change the dynamic of their interactions with the healthcare system. In becoming the purchaser, one shifts from asking permission of someone else, to conducting a direct transaction for services. In a system where someone else pays, we do not own the exchange, and have less interest in the outcome. When we purchase directly, we naturally take more ownership. The most important ‘shift’ is the one where buyers go from trying simply to get MORE from the third-party payer, to wanting value from our own money. We ask more questions, and make more active decisions. THAT is the purpose of HSAs.

From an economic perspective, if a person pays for a service out of his own pocket at his own discretion, he will compare the value of that service to what the funds would have been worth to him for the best alternative purchase. If someone else pays, he cannot make this tradeoff because the funds are not available to him for anything EXCEPT healthcare! So, there is an inherent incentive to spend more. Saying it another way: paying directly makes us smarter purchasers.

For those decision-makers who have been resisting health savings accounts for employees because you don’t want to subject individuals to the hassles of asking questions or handling billing, consider whether HSAs might actually protect them by facilitating their active involvement in critical health decisions.

How can HSAs protect people? By encouraging us to make informed decisions, and become more aware of both the value and the risk of medical interventions.

We are a nation of doers and action-takers. We want things solved and fixed. It almost seems we prefer INCORRECT CERTAINTY to honest ambiguity. And because patients want THE ANSWER, providers learn to give one. It’s much quicker and easier to say “get surgery to solve the problem” than it is to explain the likelihood that the symptom is one of several problems, AND the chances that various options (including nothing) will help, AND the risks and benefits of each possible intervention.

So, patients continue to ask doctors for the wrong thing—a single, swift, concrete answer—rather than what they need most: good information to make an informed decision. When we own the problem and pay for services, our demand for accurate information will be much greater.

A recent study about the potential harms of seeking fast answers.
In recent weeks a major study reported on the questionable value of doing PSA blood tests, which screen men for prostate cancer (1). The scientists who review such things (U.S. Preventive Services Task Force) have cautioned that there may be more risk than benefit to getting this test, however many organizations still recommend it (2).

The study calculated that because of the high false positive rate, preventing one cancer requires 1,068 men to be screened, and, of those, 48 would need intervention to validate the finding. The risks of biopsy and prostate removal include impotence and incontinence. Thus, we essentially subject 50 men to risk for the opportunity to find and remove one cancer. Most prostate cancers are slow growing and non-aggressive, so there are definitely pros and cons to consider when a man decides whether PSA screening is desirable.

Many, many more examples exist including the ever-more-popular full-body scans that can detect problems before they become symptomatic. These include gallstones (which may never become painful), possible brain aneurysms (which may never burst), and calcium deposits in heart arteries (which may never grow to block blood flow). Once found, what should one do? Is action always the best course? In our system—where someone else pays—the bias is toward more testing and more treatment.

Whose job is it to inform us? If you don’t ask, no one will…

We are a nation uncomfortable with such statements as:
· “We don’t know,”
· “Even if we test, the answer may not be accurate,”
· “Sometimes if we wait, it will get better by itself,” or
· “Actually, the more aggressive treatment has substantial risks.”

We SHOULD be asking:
· “How much do we know about this problem and what happens over time?”
· “What are my options—and the benefits and risk of those options?”
· “If we do more testing, how will that change our course of action?”
· “How much do the various options cost?”

Instead we ask:
· “Can you fix me?” and
· “Will insurance pay?”

Are health savings accounts the only tool we can use to encourage information gathering?
No, but it is the only tool that would immediately increase every consumer’s level of interest in value. Even if motivation starts because of purse strings, account-holders are more likely to ask whether care is necessary, and what other options there are. Those questions can result in better safety and quality, while also helping us become more informed. And, because it is our money to spend, we feel we have more rights to ask those questions.

Plus, as a reminder, evidence shows that people become more discriminating about their care, rather than forgoing necessary care. Perhaps the term health “savings” account has broader meaning. Rather than simply a mechanism for increasing financial assets, such an account may actually “save” us from unnecessary risk, “save” us from searching for reassuring answers when there are none, “save” us from repeated testing to rule out unlikely problems, “save” us from intervention we might avoid. All of these "savings" come from the incentives HSAs create for better information.

Why this matters: As health reform looms, suggested solutions focus primarily on which third-party should pay the bill and how best to divvy up the dollars. Little attention is being given to the active role consumers can play in improving the efficacy and quality of care. No other mechanism can as instantly or dramatically alter the cost and quality of healthcare than the widespread use of health savings accounts. We all must reconsider their adoption for reasons much more important than cost-management.

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References

1. Consumer Reports Health Blog. Prostate-cancer screening: New research, but still no easy answers. Consumer Reports Health.org; 2009. Acessed March 27, 2009.

2. U.S. Department of Health & Human Services AfHR&QUSPSTF. Screening for Prostate Cancer, 2008. Accessed March 27, 2009.

Supporting the whole person, rather than just fixing his parts. Entry 6 - 2009.

2009-03-15T10:28:00.005-06:00

In our research for both public and private employers, we find that the top 5% of healthcare consumers in any group cost more than the other 95% combined. They get an amazing amount of healthcare services; the top one percent average 20 different doctors, 20 unique medications (not refills), 60 tests, and 15 procedures in a single year. With this many different healthcare interactions taking place, is it even possible to be safe? Is it possible to keep track of what has occurred, let alone actually have care coordinated? In the current system, I am convinced the answer is ‘no.’

For example, I have a relative who is being seen by providers in a managed-care system that uses centralized electronic medical records (EMR). Even there, she has appointments where the neurologist clearly has not reviewed information left by the cardiologist, or where the orthopedist had not seen what happened recently in the E.R. Thus, even in a system where record-tracking is superior to most, the doctor who oversees heart care often may not pay attention to what the bone-care doctor does. They deal with parts, not people. Last week she asked: “I have all these specialists addressing each of my problems, but who has all of me?”

Why dividing people into separate diseases and parts isn’t the way to manage costs and improve outcomes.
First, serious health challenges rarely involve a single diagnosis at a time. In the case of my relative, there are seven-to-ten significant issues to handle, yet no one seems to put them together to examine how they all interact.

Second, health—while an important dimension—is but one dimension of who we are. Are there any medical situations when the welfare of a person as a whole is less relevant than one of his parts? Are we in the best hands when an expert knows only about the parts of us on which she’s trained to focus, or when an expert sees those parts in a larger context of other parts and of us as people? I think the answers are clear.

Yet, we still keep moving farther and farther away from dealing with people instead of their parts.
The continued trend toward ever-greater specialization is worrisome. Just recently someone called my attention to a new specialist called a laborist. This provider only sees a woman from the point when the patient goes in to labor until she delivers her baby. No involvement during or prior to pregnancy—simply the inpatient delivery part. So, the specialty (obstetrics) now has a sub-specialty.

Do most women need a super-specialized specialist to deliver their babies more than they need someone (also highly-trained) whom they trust and who is familiar with their issues, hopes, and preferences? What’s next, a first-trimesterist? Specialization is a natural evolution of scientific learning, but in the U.S., we use it too soon and too much.

The person has been lost among his parts.
By focusing on people’s parts or specific events, haven’t we missed the real point of why we value health in the first place? Health is one of our personal assets that we use to experience and accomplish what we each desire. Health is a vehicle. But we treat it as a destination. In essence, we don’t know the real value of the vehicle, unless we know where we want it to take us.

That is missing in healthcare—someone who helps a person put all the treatments and tests in their own personal context. Patients get 20 doctors, 20 medications, and 60 test results, but who asks them how those fit (or don’t fit) into their life, work and family situation? Right now? Nobody.

We would argue that most people do not need more care, they need someone who recognizes that health challenges take place in a much broader context. We need care providers who take a step back from all the focus on parts and diseases and see their patients as whole people with needs and circumstances that reach beyond pure healthcare. Health challenges do not exist in a vacuum, but in the context of work, family, community and personal beliefs.

Given the de-valuation of primary care in recent years, holistic general practice is hard to find. And what I am referring to here extends even beyond the scope of health. Because this sort of care is the antithesis of specialization, it would be counterproductive to give it a name with an “ist” on the end. We might call it person-centered, human-capital-oriented, primary care (but I don’t think that name will stick). We could also call it professionals helping-you-with-what-matters-to-you.

Imagine if we used a person-centered, human-capital-oriented approach, how would the notion of “care” change?
Such professionals would respect the fact that what appears to be a “simple” treatment may actually be part of a complex web of factors. Take treatment of high blood pressure, high cholesterol and obesity. To a medical professional focused on health as a vehicle to be fixed, it is blatantly obvious that the patient should simply comply with a medication regimen and lose some pounds. A medical professional who sees things in context, however, might see that her patient has a family with a sick child who depends on the patient. She might see that medications are causing him to feel fatigued, and that his job is stressful with unreliable hours, complicating his patient’s schedule and diet. She might see financial pressure adding to worries about job performance, and she might understand that he’s afraid because his father died of a heart attack at a young age…the age he is now, as a matter of fact.

Understanding health inside a larger framework means helping patients sort through their realities and fears, options and considerations. It’s recognizing that what we call “non-compliance” is not misbehavior to be corrected, but a consequence of many life circumstances and challenges. Are some medications causing the fatigue? Are there other options? A human-capital orientation may involve help sorting through the child’s illness, or discussing what job options there may be. The provider does not have to be an expert ABOUT all aspects of life—he or she only has to be an expert in helping someone figure out how their health choices fit into their life.

The practice of person-centered, human-capital-oriented, primary care would apply the two vital tools which have disappeared from medicine in the past few decades: listening and time. One cannot understand a person’s goals, fears, and problems without these tools. Yet in today’s usual seven-minute (or less) visits, there is only time to identify what’s broken and select a possible fix. In our analogy, current medicine can slap a patch on the tire, or reconnect the air hose…but not check whether the driver has lost his way and needs a map.

Does this type of professional exist?
Actually, there are certainly generalists who practice in the tradition of true family medicine—and hopefully we can all have the luck of finding them. If you want to see an example, check out the model used by my colleagues at HealthyFamiliesSucceed.com (1), a service for Medicaid recipients in Wyoming that combines health and job services.

The same model is used for employed individuals. It provides a team of advance-practice nurses and clinical pharmacists who spend 8-10 hours with individuals facing complex health and life challenges. These individuals have many specialists telling them how to fix specific issues, but no one asking them what they need or want. Their experience shows that people often need and want to sort through the context of their issues before they can make progress on health. So, while we may all think that access to a super-specialist is the best deal in town, perhaps what our system really needs is someone available help us see health in its broader human context.

Why this matters. Healthcare has become increasingly fragmented and specialized, and economic incentives continue to pull us in that direction. Yet, compartmentalized healthcare ignores the fundamental reason we all want to be healthy: to live our lives and accomplish the things we desire. In our health as human capital model, health must be considered within a broader context. Here we propose the use of a different approach—reversing the trend toward more fragmentation by synthesizing a person’s complete health needs within the context of his life—a role that is absolutely needed to improve quality and reduce costs.

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A comment on the economics of fragmentation: Only in healthcare do we see more experts than generalists. Why? Because our system has removed the usual relationship between price and demand. Specialists have more training, so they demand to be paid more. If the consumer was responsible for paying that extra cost, he or she would decide whether or not the extra expertise (laborist) was worth it. But because consumers rarely pay for health services with their own money, they never think about whether their decision is a good deal or not. (Nor are they aware that more specialization means more fragmentation, which has its drawbacks.)

Doctors see that they can earn more as a specialist, and consumers see they can get expertise without having to pay the extra price, so our incentives line up for everyone to head toward ever-greater levels of specialization. As we have said before, unless patients become true consumers, making decisions based on price and quality, this trend will continue.

References
1. Healthy Families Succeed. http://www.healthyfamiliessucceed.com/cphfs/. Accessed March 12, 2009.

Real help isn’t GIVING TO people, it’s INVESTING IN their ideas and abilities. Entry 5 - 2009

2009-03-01T08:01:00.005-07:00

Imagine a reality far worse than our economic recession. What if you were one of the world’s poorest, born to a poor family in a developing nation, uneducated, illiterate, and without opportunities to move up? If someone were to offer you help, what would you want it to be? Would you prefer handouts and strict rules, or would you want to earn your opportunity and make your own decisions? Would others give you that opportunity?

Watching recent news on the nearly $800B stimulus package bail-out, I’ve heard countless and differing opinions about what really helps people. Is it more programs, less taxes, more jobs, higher education, or additional training? What kind of and how much assistance should we rely on from others, versus a better chance to help ourselves?

The same question lies beneath debates about health and healthcare. How much can officials improve people’s health with more free services, versus giving people the means and motivation to protect and improve their own well-being? Do we offer carrots or sticks? And is more spending on coaching and convincing others to eat right, lose weight, take their medicine, etc., our best route to healthy citizens?

Lessons from Bangladesh and a man who understands the secret to “helping.”
Nobel Peace Prize winner and economist, Mohammad Yunus, can teach us many lessons about successful “helping.” In his talks and books, Yunus describes his early efforts with—and ultimate decision to abandon—charitable organizations as a means of lifting families in Bangladesh out of poverty. Traditional methods of “helping” (paying helpers to give free services to others) didn’t work. (See the previous blog on the incentives of spending other people’s money). He saw that large charitable organizations inevitably use the majority of funds on their own infrastructure and employees and less on the intended recipients.

His conclusion: the best way to help people is not by giving things to them (through charities needing never-ending donations), but by investing in them (through self-sustaining mechanisms that can survive indefinitely) and expecting something back.

Yunus’s methods through Grameen Bank are now a global movement called micro-lending: loan people small sums of money to start their own (very) small businesses (1). Give them training and social support. Ask them to pay small, manageable amounts of principal and interest on the loan as they become successful, and to put some of their earnings into savings, education, and health coverage.

He works with poor families and recently began giving loans to homeless beggars. Yet, nothing is completely free to recipients—not financial aid, not healthcare, not education. It is all earned. And funding comes not from charity, but from growth-producing business enterprises. Payback on the loans is listed at over 98% (2). (Compare that to our foreclosure rate!)

Do his models work? Yes. His efforts have lifted almost 20 million families out of poverty so far, allowed over 10,000 children from poor (and largely illiterate) families to attend college, created a network of health clinics, and built one of the largest, most successful (and stable) banks in the world. Interested blog readers will be inspired by his story (3), and in recent successes making micro-loans to women in the US (4,5).

The Yunus definition of helping changes things.
Never in history has one organization stopped the cycle of poverty for so many. And it continues to grow and thrive, expanding across virtually every continent.

Yet the model is fundamentally different than usual forms of helping, because rather than focusing on GIVING TO people, it INVESTS IN people and their ideas for generating income. In the language of the Health as Human Capital paradigm, Grameen Bank invests in human capital growth. Grameen starts with skills and motivation as the primary building blocks, reinforcing self-confidence in borrowers, 98% of whom are female. (Yunus found early on that women are more inclined than men to spend her earnings on her family, thereby lifting entire families from poverty).

Unlike a more typical approach where “helpers” presume that recipients are generally incapable, Grameen presumes the opposite. Grameen operates on a fundamental 'non-negotiable' belief that every person, without exception, has the skill, motivation, and ability to care for herself and her family (5). Yunus has often stated that every human is a natural entrepreneur given the chance.

Do Americans share this faith in every human’s inherent abilities?
Sometimes I wonder. In the land of equal rights and justice for all, do we believe every person is capable of success? More often than not, when I am speaking on behalf of the Health as Human Capital Foundation and our support for giving people more control (over their work, time off, health-spending accounts, etc.) the response is one of doubt about whether “people” can be trusted to take care of themselves. Physicians have told me that awarding bonuses to workers based on performance will result in injuries because people will work to the point that they harm themselves. HR directors have told me that letting people cash in unused sick leave will cause people (even highly educated workers) to work too hard. Many, many others have told me that allowing people to choose health accounts will result in unwise, health-damaging decisions.

Basically the sentiment is: people can’t make “good” choices so we need to make decisions for them.
Mohammad Yunus believes poor, uneducated, unskilled people in Bangladesh have the ability to care for themselves. Yet, we doubt the basic abilities of even our most educated workers to do the same. What if our strategy for “helping” people is based on our doubts about their ability rather than on a true commitment to what really works? Have some of us (business owners, healthcare providers, legislators) developed a sort of learned superiority that allows us to prescribe what is best for everyone else? And does this flawed model of “helping” actually undermine any ability people have to tap into that “fundamental 'non-negotiable' belief that every person, without exception, has the skill, motivation, and ability to care for herself and her family?”

Or perhaps we would rather not admit how self-serving and hypocritical it is to insist others are incapable, because we can make more money by “helping” them.

Instilling self-reliance versus dependence.
I once heard Mohammad Yunus discuss how the success of Grameen Bank extends to children. He said they benefit from seeing their mothers build successful businesses, and he challenges the children not just to get an education and a job, but to plan to create jobs for many other people. They grow up believing that they can and will run their own businesses someday. They grow up knowing the value of their own human capital, instead of becoming dependent on the kindness of more fortunate countries to provide for their basic needs.

Is it time to stop underestimating our fellow Americans?
More than any other period in my lifetime, the US could really use some old-fashioned ingenuity, investment, and trust. Instead of presuming the worst of workers, perhaps it’s time for businesses to consider giving workers incentives to be innovative and succeed. Try pay-for-performance and encourage workers to voice new ideas. Give options during lean times to cash-in unused sick leave, or allow the option to work more and earn more. Empower employees and their families to be informed consumers in healthcare by funding health accounts that share both the costs of care and savings from better health management.

Think about creating environments conducive to human capital growth—understanding that with the right incentives, both productivity and health will improve. Yunus didn’t have $780B dollars when he empowered the poor and changed the course of history in Bangladesh. He started with a $27 loan. But his belief in people helped it grow to $6.5B since then. Maybe that’s the kind of help we all need.

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References

1. Grameen Bank. What is microcredit? 2008. Accessed February 23, 2009.

2. Grameen Bank. Grameen Bank at a Glance. 2008. Accessed February 23, 2009.

3. Yunus M, Jolis A; Banker to the Poor : Micro-Lending and the Battle Against World Poverty. New York: PublicAffairs; 1999.5.

4. Grameen America. Grameen America: banking for the unbanked. 2009. Accessed February 23, 2009

5.. Grameen America Expects Dramatic Increase in Microcredit Loans to Low-Income U.S. Residents in 2009. 2009. Accessed February 28, 2009.

The most important economic principle I ever learned. Entry 4 – 2009.

2009-02-15T09:36:00.012-07:00

Q: What do the following situations have in common?

· Parents of a young teenager who discover 1600 text messages on their monthly cell phone bill,
· Bank executives spending government bail-out money on bonuses or office remodeling,
· Legislators adding their favorite pet project to an immensely important stimulus bill,
· Homeowners who find that they can’t get the prepaid contractor to finish the last part of a remodeling project,
· American customers at restaurants in New Zealand (where tips are frowned upon) find the service everywhere is very slow.

A: They are all predictable situations based on who bears the cost and who receives the benefit.

A simple principle changed my thinking.
It’s not often that something you read changes the direction of your career, or even your perspective. In fact I can only recall one thing that ever has: Milton Friedman’s Free to Choose (1). More specifically, it was one figure in the book. I remember I was on a BART train, riding to a meeting in San Francisco, when I read the text explaining this figure. (click on it to enlarge)

Rather than quote his text, I will explain in my own words. There are only four types of spending in the world. Those types are determined by two conditions: whose money one is spending and on whom the money is being spent. Depending on those two conditions, spending falls in one of four boxes; and each box has inherent human motives.

Friedman pointed out that the only box with balanced motives is the one at the top left: me, spending my own money on myself. Under those conditions, I am both the person spending money on a product as well as the person who will receive the benefits of that product. So, I have dual motives to spend less (money) and get more (utility).

No other type of spending has balanced motives.

When I spend someone else’s money (bottom left), I have the tendency to spend more than if I am spending my own. Think of business dinners or company rental cars. This is the box representing classic moral hazard: where we are willing to consume more or take more risk if someone else will pay the bill or accept the consequences.

When I spend my money on someone else (top right), I have motives to spend less. Because I will not benefit directly from the purchase, I may pay less attention to value, and choose a less expensive option (at least more so than if the product was for me personally). To consider this in the context of pure human nature: if you gave a child $5 to buy a present for his sister, then told him he could keep what he didn’t spend, he’d find a way to spend less on his sister.

Lastly, Friedman (a known critic of virtually all government spending) explained the last box at the bottom right. When I am spending someone else’s money on someone else, I have NEITHER the incentive to spend less or get more. My choices will be driven by motives totally unconnected to the cost and value of the exchange. He pointed out that all government spending resides here. Without balanced motives, legislators will often be driven by ideology or re-election concerns, rather than fiscal responsibility or maximizing utility; it’s not their money, AND they’re spending it on someone else. Food for thought: often, doctors land here too.

So What?

Perhaps these four simple categories should not have come as such a revelation, but they did. Many issues suddenly made more sense: all-inclusive versus fee-for-service healthcare; high versus low deductibles; the ineffectiveness of many government initiatives; benefits utilization patterns; employee and patient behavior; crooked politicians. Many of our systems are created to operate with either unbalanced motives or no coherent motives at all. By design they are predetermined to create over-consumption, uncontrolled cost or compromised quality. We built them that way.

In fact, if you hear a complaint about how people are behaving—in business, society, schools, healthcare, international trade, industry—you can almost always go back and see that the problem reflects a mismatch between who the behavior is costing (financial or otherwise) and who the behavior is benefiting. If benefit and cost are not BOTH shared to some degree, we will have a motive that pulls in a potentially troublesome direction. When a teenager can send text messages all she wants, but is not expected to pay for them, she will text more. If a physician can bring in more revenue by doing more tests, he will order more of them. And if the patient has insurance that will pay for the test, he is more likely to consent.

If we expand this concept about “spending” to include other types of resources, such as time, effort, or property, we can suddenly explain an even broader array of frustrating problems. Each of us will use our own and others’ resources in ways that maximize our own best interest.

We inherently care more about protecting our own time, money, or property than someone else’s: If it is my resource, I am more likely to protect it. If it is someone else’s resource, I am less likely to protect it.

Once I grasped that ownership (of the cost or benefit) is such a powerful motive, it became more obvious how often we ignore its influence and hope (in vain) that other convincing strategies will work. We pay people the same amount of money to be absent (someone else’s money) as we do when they come to work, and then we hope they won’t use sick leave unless they’re truly ill. We educate, plead, scold, promote, and cajole…asking people to do what they ‘should’ instead of doing what they’re inclined to do based on the motives and incentives that our very system has created. Can we be upset that doctors and patients alike are spending more and more on unnecessary health services when that’s exactly how we’ve designed the system to work.

Many will react to this as an oversimplification, or not applicable to healthcare.

Of course each person may respond differently to the same circumstances, and there are always exceptions to the protection of resources rule stated above. But, on average across populations, it is true that having to pay our own money causes us to spend and choose differently than if we were paying with someone else’s money. All of us know that from experiences with children and allowances. A product on the store shelf often has less appeal when it must be purchased from our own piggy bank.

Over-consumption happens in healthcare. When we do not spend our own money we are less likely to question extra services. Healthcare is no different in how incentives work, yet it brings out more objections because we are certain that nobody wants to be sick, and we hesitate to label any medical service as unnecessary. But study after study indicates that the same incentives apply.

What the four boxes suggest.

Once people understand Friedman’s figure, they also understand why our proposed solutions to challenges in business and healthcare involve sharing responsibility and sharing rewards. This includes health savings accounts (spending my money on me), paid-time-off banks (spending my vacation days on me), and profit sharing (spending resources wisely, because what is left over benefits me). Without balanced motives, we will always be fighting against a current of misaligned incentives.

One will also understand why, like Friedman, we oppose a government-run Universal Healthcare system; it would fall firmly in the bottom right-hand box, absent of any balanced fiscal motives.

The next time you hear someone complain about how people (patients, workers, providers, executives, neighbors, children, you name it) behave, think about which box they are in. Most likely, they are operating exactly as you would expect them to.

Why this matters: Incentives drive behavior. Only one set of circumstances in Friedman’s figure creates balanced motives for spending less and getting more. All other circumstances lead to less-than-optimal behavior (excess consumption, resource restriction, or completely unrelated motives). Imbalanced motives explain many of the troublesome behaviors we see in society—and also help us define ways to improve efficiency
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References
1. Friedman M; Free to Choose: a Personal Statement. New York: Harcourt Brace Jovanovich; 1980. (p116).

I don’t have to write a blog this week—I have a doctor’s excuse. Entry 3 – 2009.

2009-02-01T09:06:00.002-07:00

Consider these real scenarios:

1) In Belgium, the ministry of health reports that employees in some government departments average 35 days of sick leave per year. The government pays full salaries for unlimited sick leave, which now totals almost 1.3% of GDP. Officials report that most workers on leave have been given a diagnosis of depression and that nothing can be done because: “You can't contradict the opinion of a psychiatrist.” One expert estimates that only 5% are truly “cheating” but that at least 65% of those on government-paid leave could be working. However, they can’t be forced back to work because they have a doctor’s excuse.

2) A delivery driver nearing retirement has an ongoing conflict with her boss. According to her, he assigns many more deliveries to her than other drivers. The conflict escalates. She files a formal complaint, but conditions simply get worse. Finally, she cannot handle the situation and goes to her doctor—who gives her a stress-related diagnosis and permission to miss work. She feels grateful that someone finally validates her struggle. The company requires a psychiatric exam before she can return behind the wheel.

3) A corporation with an 80-hour-per-week culture prides itself on productivity. When interviewed, company leaders mention how little sleep they need. Among employees, stress seems to be viewed as a badge of honor. Although the workforce is quite young, medical costs are high. Rates of musculoskeletal disorders are high and prescription pain killers are near the top of their employees’ drug list. While not socially acceptable to be overwhelmed, when it manifests itself as physical symptoms, seeking help is okay.

The power of a doctor’s word.
While slightly different, the examples above all remind us how much power we give to medical labels and medical authorities. Most of us learn this in elementary school—to miss a school day we need the doctor to give us permission.

All of the examples also reflect “real” problems. However, in these cases, the suffering or discomfort may reflect circumstances beyond biomedical pathology.

Primary care saw this coming.
Decades ago, primary care leaders recognized that medical practitioners were relying increasingly on the scientific aspects of modern medicine which leads to authoritative, decisive answers. Appropriately, practitioners worried that respect for individual choice and free will (if science is the only true explanation, how could one argue?) would be lost and myopic views about what causes disease would become the prevailing practice.

True primary care describes the need to understand disease as a sociopolitical concept masquerading as a biomedical one. When a more inclusive definition of what causes suffering gets hidden behind a wall of biomedical cause-and-effect, it creates an environment where every ill—whether mostly social, economic, political, educational, environmental or otherwise—requires an additional doctor or pill.

Hence, we get a doctor’s excuse to help us manage an unrewarding job, a difficult boss, or unreasonable work demands.

Is it any wonder we see higher medical costs when morale and work rewards are low? In our research, we find that employees who perceive few opportunities or rewards in their work have more healthcare events and disability claims than those working in high-reward environments. When companies provide richer health benefits as a tradeoff for better wages, employees learn that healthcare is a pathway to get more value from their employment, such as extra time off as they seek in Belgium. In contrast, we also see that more rewards and opportunities translate into retention of top workers who have the skills and job mobility to find better options if they are unsatisfied with their jobs. In unrewarding jobs, those who can find other options, do so.

Workers with less job mobility who find themselves in an unrewarding environment (or a boss they don’t like, or a high level of stress) are more likely to translate their suffering into a biomedical reason—with the help of a doctor’s label. Similar to the comments from early primary care leaders, we may be seeing a human resources problem or a skills deficit masquerading as a biomedical issue. The symptoms are real, but the source of the person’s pain extends beyond the physical body. More important, treatments may not require another specialist or another medication.

If it’s not more doctors or labels, what are the solutions?
First, when patterns of health issues arise, employers should investigate potential non-medical contributors to the pattern: policies, ineffective managers, dead-end positions, or skills deficits. A good indication of how rewarding jobs are is the portion of high performers who leave the company compared to low performers. If talent is leaving, incentives and rewards are not aligned.

Second, people need more care from practitioners who provide true bio-psycho-social support along with clinical expertise. Best case scenario—primary care. However, given the severe shortage of primary care physicians, this may need to come from affiliated professions like advanced practice nurses and pharmacists. And these practitioners must understand the connections between business policy and human capital, between skills, motivation and health. Unless a practitioner has the training, time and incentive to explore the various circumstances contributing to a person’s suffering, his biomedical-scientific training will lead him to yet another label or pill.

It’s time for a broader perspective.
Escaping a purely medical paradigm requires a focus on people and business first, before specific diseases. Employers (and healthcare companies) have focused heavily on diseases and risk factors as precursors to business costs and workforce productivity. The more we analyze data, the more I am convinced that many disease and healthcare utilization patterns are indicators of poorly designed business policies: training, management, rewards, or benefits design. The difference in types of diseases and costs of treatments between an environment of well-aligned versus poorly-aligned policy and rewards is dramatic.

So, before companies introduce their next risk reduction, disease management, or case management program to address problems one-by-one, perhaps it is time to take a step back. How much are health problems reflecting opportunities for business and policy improvement rather than a need for yet another medical intervention program? If workers could express confidentially how they feel about their job, their boss, or their future, what would it sound like? Is it possible that human resource skills or management problems are masquerading as musculoskeletal, mental health or other issues? Maybe we should look there first.

It’s hard to change paradigms.
In my experience, some readers will misinterpret today’s blog as an unfair dismissal of “legitimate” illness; that is not the intent. Recognizing suffering and discomfort as multi-faceted does not make it less real, just more human. Just last week researchers reported that people getting less sleep are three times more likely to get a head cold than those getting over seven hours per night. This does not mean that sleepy-people’s colds are less miserable, simply that many factors contribute to illness.

Also, some employers would rather ignore business factors in healthcare utilization because it is easier to assign responsibility to employees and their doctors than consider fixing a problem with corporate policy. Many people would rather stick with a purely medical interpretation because it makes the course of action easier (and someone else’s responsibility).

Plus, if managers get frustrated enough with employee absences and misbehavior, they can always get a doctor’s excuse to take some time off and a prescription for antacids.

Why this matters: While some physical ailments have a pure biomedical cause and associated treatment, most experiences of and reactions to illness vary according to one’s circumstances. If we ignore how work environment, rewards, training and other factors influence illness behavior, we miss opportunities to improve individual wellbeing and business outcomes.

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References
1. Miller JW. Belgians Take Lots of Sick Leave, And Why Not, They're Depressed . Wall Street Journal Online. January 9, 2009. . Accessed January 30, 2009.

In corporate turf wars and playground politics, teamwork makes all the difference. Entry 2 - 2009

2009-01-18T14:27:00.002-07:00

When I was a kid, there weren’t many organized sports leagues, so we mostly played neighborhood games. A few of us owned baseball gloves and old baseballs, but only the kid on the corner, Charlie, had a bat. Together, we would draw bases with chalk and play. On occasion, when Charlie didn’t make it to first base and we called him “out,” he would get mad and take his bat home, ending the game. Without him we could play catch… but not baseball.

I’m not sure what business Charlie went into, but lately I have been wondering if he manages a department in a large organization.

We continue to be amazed at compartmentalized, fragmented approaches to problem-solving in large organizations. Usually, we work alongside forward-thinking groups who manage one particular area of a business. They often recognize that, by integrating their data with a broader array of company departments and metrics, there are proven gains for all parties. Among the many discoveries, companies find “hot spots” where combinations of poor performance, disability, and turnover indicate management problems.

Sharing information, different groups can locate redundancies, and better understand how one set of policies may drive unintended behaviors in other departments. They find relationships between their combined decision making around absence and compensation, and see the effect it has on business outcomes. In short, by sharing information across departments, the business runs more efficiently, investments are more targeted, solutions more coordinated.

But large companies inevitably get in their own way. Functions, budgets, and responsibilities are fragmented in large firms, making an integrated strategy increasingly infeasible.

Put simply—we all like to have our responsibilities clearly marked, and resist other people sticking their noses into our business. More boxes, more boundaries. Humans have a natural motivation to acquire more and protect what’s “ours.” We tend to categorize even our colleagues as “us” or “them” depending on whether we perceive other groups as an ally or a threat. If power is determined by budget and headcount, the last thing a manager wants is to share resources with another department, even if it is for the good of the company.

Recently, we sat in a meeting where one department leader said to the other, “I see how sharing our data would be helpful to your efforts, but I fail to see exactly how it would benefit my department.” I admit, I was shocked. It was not sufficient that integrated data would help the company as a whole; unless it represented political or economic value to his efforts, he would not contribute. Like Charlie, he was taking his bat home with him. And like Charlie, he will prevent his peers from conducting a successful process without him.

So often we find ourselves artificially divided by budgets and turf.

Early in my career, I had a heated argument with a sales representative in my own company. He had the nerve to say that his department was solely responsible for our company’s recent success. Without their excellent sales work, he said, we would have all failed miserably. As part of the research team, I countered that our brilliantly designed, creative product was good enough that any joker could sell it. In my opinion, our work made the company unique.

It was a counterproductive, pointless argument and it happens when we get caught up in our own interests and lose sight of the sole reason we were both hired—to work together to advance the company’s goals. The minute any of us put our separate contributions ahead of collective success, all of us lose. We lose insights, we lose key information, we lose opportunities, and we certainly lose perspective.

While we wish that collective vision and teamwork would always be enough, we realize that department heads and data owners need to understand why sharing data is good for them as well. Data management technology has advanced sufficiently that there are few reasons NOT to. So, short of being ordered to do so, why should they bring their toys and join the game? What value does an integrated perspective bring to each of them?

Here are some examples of findings that required separate groups to share data and develop cross-departmental solutions.

One client identified a large overlap among employees having workers’ compensation claims, disability claims, and work performance issues. The same population of employees was being simultaneously “managed” by several programs. Working together, several program managers consolidated outreach efforts and created incentives for managers to engage and actively address performance. There was immediate savings rendered for each of the programs, but none could have individually implemented the solution.
When worker safety was an issue, another client integrated their data to reveal strong correlations between tenure, location, training, and work-related accidents. New workers at certain locations were statistically more likely to have an accident. Solutions included revision of training practices at certain sites and closer monitoring of new workers. Safety costs fell immediately, freeing resources to reward the best performers.
Why do some teams perform better than others? This example involved sharing data to measure the direct association between demographics of teams and their work output. Correlations indicated that certain combinations of gender, tenure, and experience were predictive of better team outputs. This finding was used to help construct teams in the future, and collective productivity increased in the same quarter.
Across a company with several different compensation approaches, some options resulted in better sales output and lower turnover. By combining business outcomes, HR and payroll data, the company was able to identify which compensation approach was most conducive to better revenue and retaining top workers.
One company found that a significantly higher portion of workers having less than 6 months tenure were getting bariatric (stomach reduction) surgery. Workers seemed to be taking jobs just to gain access to the procedure. Additionally, two-thirds left the company within 18 months. This discovery required a link between HR, medical, disability, and turnover data. Changes were made in specific benefits design, retention improved, and health costs were immediately lessened.

These are but five of the literally hundreds of discoveries companies make when departments work together and see business issues in a cross-functional way. When working together and sharing information, it becomes normal to consider how policies in one area affect success in another. Integration provides unparalleled efficiencies and insights. But with those come fear that one’s peers may find flaws or problems hidden in one’s own area. The less confidence we feel, the more strongly we resist transparency in what we do.

Imagine how different departments might act if collective incentives were aligned?

Imagine if departmental budgets were allocated and rewards paid, in part, based on how successfully they improved the performance of other departments and overall business goals? Putting the incentive on valuable collaboration would require departments to A) know how they affect each other (i.e., monitor outcomes in an integrated way) and B) acknowledge that segmented decisions about budgets do not always lead to the ideal collective outcome.

As we begin a new year in a difficult economic climate, we hope for greater collaboration, cooperation and integration. We hope for shared discoveries that save money, improve business performance and enhance the work environment. We hope for opportunities to work with many new stakeholders—who decide it is in their best interest to bring their toys and join the game.

Why this matters: Successful business leaders look for patterns and correlations in their data to help make decisions. In most large companies, available data are limited to a narrow set of metrics within their own domain. While it may seem logical to make decisions department-by-department, experience tells us that even well-informed choices made in isolation do not serve the whole organization as well as integrated ones do. Unfortunately, as budgets tighten, departments will likely compete for turf and dollars when they ought to be proactively looking for efficiencies that result from integrated information and decision making.

Third-party payers of gourmet food: It sounds good, but what about the basics we all need? Entry 1 - 2009.

2009-01-04T15:51:00.008-07:00

What if?

Imagine we decided that access to food was a universal right for U.S. citizens. Instead of providing food stamps or some other currency for purchasing food anywhere, low-income citizens now eat all meals at restaurants that forward the bill to our national government.

Because different foods, with different nutritional value, prepared by different chefs, with different methods, in different parts of the country have different costs, the government hires experts to determine the relative value of a given meal. A team of 30 experts assigns meal value, which considers a chef’s expertise in allergen-free cooking, lactose and gluten substitution techniques, organic produce selection, and many other specialized nutritionist and culinary skills. Three of the 30 expert chefs come from regular cafeterias.

The government team spends years developing a coding system of relative value units (RVU). Naturally, the group looks at the cost of ingredients and preparation. A meal requiring special equipment, organic ingredients, specialized chef skills, or served in a big-city restaurant is of greater value.

So, basic oatmeal and fruit served at a diner in Omaha is assigned a RVU of 1; oven-baked, enriched, seven-grain granola, with organic, pureed mango served in Boston is assigned a RVU of 4. For consumers needing special meals, a three-course, no-gluten, antioxidant-rich, organic meal prepared in an allergen-free kitchen, is assigned an RVU of 16.

When low-income patrons seek meals, restaurants are paid a set amount for each RVU served.

While the food scoring system is intended to reward restaurants fairly, it creates some unintended consequences. Chefs soon learn that having special skills means earning a better living. So, even though 85% of the population needs simple, nutritious-but-low-RVU meals, fewer and fewer chefs in culinary school undergo general, primary-food training. Cafeterias serving the basics like chicken noodle soup, baked fish and steamed vegetables have begun to close down because funds barely cover the cost of mass meal distribution. Soon, simple meals for families in places like Casper, Wyoming are almost impossible to find.

Because chefs also realize that serving those with special dietary needs is more profitable, more and more consumers start being classified as having borderline dietary requirements. Direct-to-consumer advertising on television promotes genetically-modified foods, encouraging consumers to “Ask your chef if organic, iron-enriched broccoli is right for you!” Consumers now ask for high-RVU foods, rather than take an over-the-counter vitamin. Someone else pays, so why not get the best?

When road-side snack vendors appear with convenient, inexpensive meals, the American Chef Association releases announcements about the dangers of unregulated snacks by untrained providers, arguing that the system should not reimburse these cooks.

Inevitably, society begins to worry that the cost of meals will exceed a manageable national budget, and soon, we will not be able to provide basic nutrition for millions and millions of people. Yet, specialist chefs still argue that we have the best food in the world, from the most talented cooks in the world. Why would we consider changing such a system? Yes, the system helps individuals who have expensive dietary needs they cannot afford. But at the same time, it leads to excess consumption of expensive items and threatens resources for the routine needs of the masses.

You get the point.

We considered expanding this analogy to include the unit price of using a convection oven or fancy food processor, instead of a standard microwave or simple kitchen knife, but perhaps the message is clear enough.

For those unfamiliar with how prices are determined in healthcare, this is not a distant comparison. Today, a small committee consisting mostly of medical specialists recommends Resource-based Relative Value Units (RBRVUs) to Medicare. Medicare accepts over 90% of recommended RBRVUs, and commercial insurers adopt their pricing from the same system. The American Medical Association owns and licenses software and documentation of this pricing system for tens of millions of dollars each year.

While the original intention behind RBRVUs was to create a fair reimbursement scheme, its consequences have severely undermined the value of primary care and the availability for generalists to make ends meet. When a third-party pays, providers have incentive to deliver more expensive services where possible and consumers have incentive to consume more than they would if paying their own money.

In our imaginary world, we find makers of turkey sandwiches and apple slices hard to find, while experts in beef tenderloin and goat-milk yogurt thrive. In the world of healthcare, we can schedule an MRI today and surgery tomorrow, but can’t find a family doctor to talk about mild headaches or a skin rash for another three weeks.

Third-party payments often produce more trouble than help.

When third-parties set prices, especially when the price-setters have a strong incentive to pay themselves more, misaligned incentives naturally occur. Providers want to provide services that reimburse them most. Consumers want to consume what seems of greatest value, with no balancing incentive to pay less.

Our example above seems silly as an alternative to food stamps or food vouchers, because we expect individuals to purchase what they need under the same pricing structure as those spending cash. We place limits on what food stamps can buy—no cigarettes or alcohol—but we allow individuals to choose what they need. Having the government pay restaurants more because they have fancier food seems wasteful when a person could get a cheaper, nutritious meal.

Medical care has equally nonsensical difficulties that have evolved as a result of third-party payment and price setting. Americans get far too many unnecessary high-tech procedures and tests, partly because the RBRVUs are so attractive to those getting paid to do them, and partly because consumers don’t worry about price. But even more dangerous, and something we didn’t illustrate in this analogy, is the risk involved in receiving unnecessary procedures.

There are ways to help citizens get necessary healthcare without artificial price-setting or third-party payment of providers. One essential element in this is portable health accounts that build over a lifetime, accumulating funds that consumers can save or spend. When spending our own money, consumers choose services based on price and utility, and providers compete to give better service at a lower price. Like a no-frills restaurant providing a nutritious, substantial meal, consumers will recognize the value of a generalist providing primary care at a reasonable price, but can still choose specialist care (or gourmet food) when needed.

In economic terms, people who have a finite budget learn to maximize the total utility of their spending. Prices in a competitive market respond to individual choice as each of us decides the marginal utility (value of what you get for one more dollar spent) of different products. People naturally choose items they believe will give them “more for their money” rather than an expensive alternative they don’t need.

When a price is not set by the market, consumption is inefficient. When a third-party pays, consumers naturally over-consume. It is important to remember that how each person values a product is completely subjective and knowable only by consumers themselves. No one else can dictate to you and I what something is worth to us, because they cannot know our preferences. This is what makes efficient, external price-setting virtually impossible. So, when a pastry chef tells the RVU committee that butter-cream tarts are worth more than peanut butter and jelly, no one knows what consumers would really pay --- unless you let them vote with their wallets.

Indeed, we see market options appearing in some areas of medicine. Nationally more and more of the remaining primary care providers are escaping the confines of pre-set pricing and insurance restrictions to practice in a cash-only environment (1). As in this example, many patients are happy to pay out-of-pocket for an extended visit with a doctor (2), rather than feel rushed in an environment where doctors try to see 45 patients per day at RBRVU prices to make ends meet. Outside of insurance, this market for primary care reaches equilibrium, where a provider can practice medicine satisfactorily and patients believe the marginal utility of care is worth their money.

Uncle Sam Takes You to Dinner—But Who Pays for Uncle Sam?

The next time you hear someone suggest that third-party government payments for healthcare is the solution to our cost problem, remember how and by whom the price of each service was determined. Then imagine yourself at the best restaurant in New York City, sitting with Uncle Sam as he says: “order whatever you want, it’s on me. And by the way, it’s almost tax season.”

Why This Matters: Healthcare needs a market solution: the balanced pressures of consumers spending their own money and deciding what a product is worth. Efficient markets help equilibrate a natural supply and demand in ways that bring the most value to the most people, whether in the form of healthcare or food. Artificial price and value-setting seems an attractive substitute, but leads to shortages that affect all of us.
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References

1. Backer LA. 2,500 cash-paying patients and growing. Fam Pract Manag. 2006;13:64. Accessed January 3, 2009.

2. Dehamer VJ. Everyday Angels: Apex doctor makes healthcare affordable. Cary News; December 23, 2008. . Accessed January 3, 2009.

Partnership, not paternalism: Incentives for shared business success. Entry 26 – 2008

2008-12-21T09:59:00.011-07:00

Who should decide what is best for an employee’s health?

At a recent conference for medical and business professionals, I presented research showing that employees who were paid based on performance were more productive, and had lower benefits costs across a spectrum of job types and different employers. At the same time, we showed an increasing trend in some corporations and government agencies where paid-time-off (PTO) has accumulated to the point where large numbers of employees are facing the dilemma of use-it-or-lose-it. Our suggestion based on the health as human capital paradigm? Redistribute more compensation to pay for performance, reduce PTO by offering a voluntary option to cash-in unused days for more pay, and ask employees to share ownership of their health decisions by opening health savings accounts.

A common response from attendees: It would be harmful to employees to allow them to buy back their days, because they might work too hard and not take needed time off. It is their responsibility as employers to help workers manage their life balance. Besides, pay-for-performance encourages people to sacrifice their health for money. And health accounts can be dangerous if people make unwise choices.

Wow.

During parts of my career, I have been self-employed and I have friends and family members who are also self-employed. While the freedom is enjoyable, entrepreneurship has its risks: attracting enough clients, keeping up on taxes and accounting, managing computers or other equipment, and finding help with the financial and legal details.

When I mention to people that I was once self-employed, I get many reactions: “How did you start?” “How long did it take to get off the ground?” “How do you like being your own boss?” But never did anyone say “Gee, aren’t you afraid you will suffer harmful effects from working too hard?” No one expressed concern that I might not be able to gauge the proper work level without someone else telling me how many vacation days I should take. Nor did they ask if having 100% pay-for-performance was making me ill.

When did we decide responsibility and ownership are harmful?

Many will insist that highly-trained professionals and entrepreneurs (like me) are somehow different, implying that some people simply aren’t capable of making appropriate choices, maybe because they aren’t educated enough, or wealthy enough, or healthy enough to be given control over such important personal decisions. But ironically, credible studies on work and health indicate that job demands are not independently predictive of health problems. Instead, the greatest predictors of negative health outcomes are job control and social support (whether one feels collaboration and camaraderie with team members and mangers) (1).

Perhaps fewer guidelines, rather than imposed rules, make more sense? In fact, a very different approach to working gained significant attention earlier this year: ROWE (results only work environment), adopted by Best Buy. ROWE removes rules about how and when work gets done—no set hours, no time requirements, simply pay for performance. However, it does include rules about mutual respect. Nowhere in the ROWE description do the authors, or the CEO of Best Buy, express concern that individuals may harm themselves by working too hard. They simply report happier employees, flexible schedules and a 35% increase in productivity (2).

The simple interpretation: a person who chooses to work harder and longer but has control over how the work gets done can thrive. One particular study showed that individuals with little control over their work (regardless of the level of work demands) took far more sick leave (they COULD control: whether to show up), than a person who had more control (3). It seems that when employees are trusted to make important decisions, and can determine how to accomplish their work, it contributes to their overall well-being.

Forming mutually beneficial business partnerships

At the Health as Human Capital Foundation, we focus a great deal on how companies can better align incentives, information, and choice to improve the health and success of employers and their employees at the same time (see our book). Such a mutual partnership is made possible when both parties recognize that employment is a business arrangement, and that all participants share a stake in the success or failure of the organization. Repeatedly, our research confirms that employees who are given decision ownership and treated as true partners perform better and have better health outcomes.

Let’s look at two types of incentives that encourage partnership (for more detail, see our paper):
Shared Rewards: This category includes all of the means by which employees receive financial or other valuable rewards when the business does well. These may include:

Profit sharing
Performance-based bonuses
Employer-funded health accounts that grow when health expenditures are low
Cash-back from unused time off
Matching of 401(k) investments
Career advancement with improvements in skills

Shared Responsibilities: This category includes all of the means by which employees share financial or other responsibilities when the business incurs costs.

High deductibles on medical insurance
Paid-time-off banks rather than separate sick leave
Less than 100% pay during disability
Responsibility for choosing type of 401(k) portfolio
Responsibility for making important health decisions

Companies vary tremendously in their approach to incentives. As seen here, (click on it to enlarge) we can categorize the incentive environment generally in four quadrants, plus a “no-man’s-land” in the middle.

Top right quadrant: Partners. A company that shares strong, aligned rewards and responsibilities produces what we might call a true business partnership. Employees have aligned incentives to perform well (to maximize their share of gain) and to minimize loss of resources (minimize their share of risk). Because the company invests strongly in training and retirement accounts, the employee knows the company values his growth and future success, and will dedicate discretionary effort when employees at other companies might not.

Bottom left: Entitled. Here organizations have completely misaligned incentives. Employees receive little reward for business performance, and get more value from spending benefits than from saving them. This situation usually results in entitlement, characterized by the notion that, “the pay is lousy, but the benefits are great and we get lots of time off.” In this quadrant, businesses are likely to lose top performers, retain low performers and spend more on benefits than on salaries and performance pay. The relationship between employer and employee is adversarial and distrusting.

Top left: Protected. Some companies have strong reward incentives but are afraid to share responsibility incentives. At the top left, companies reward their employees with very strong pay-for-performance and invest in employee growth and career, but keep them protected from any responsibilities that encourage ownership. The result is both high performance and high benefits and medical expenses.

Bottom right, Estranged. In this environment employees have been assigned all the risk, with none of the potential gain. These workers will have low motivation, remain disconnected (estranged) from business goals, and avoid risk. High performers will not remain in this setting.

In the middle: Situation Dependent. Lastly, employers who are not paying attention to the matrix above will unknowingly create inconsistent incentives. Here employee performance and cost will depend on specific situations—how good their individual manager is, how much they like their co-workers, how well their skills fit their job, or other factors. When times get tough, effort will decline and benefits utilization will likely increase as employees respond to uncertainty.

What category is best?

Based on our previous blogs, regular readers know we always advocate for the top right: a business partnership with clearly defined rewards and responsibilities. Our work indicates that the distance from bottom left to top right translates into thousands of dollars difference in benefits costs per person annually, measurable differences in retaining top performers, and improvements in overall business outcomes. Here, employees and employers are in it together, so success matters to both parties.

Some companies claim that the ‘Protected’ top left category serves to recruit top talent in a competitive labor market because employees believe they “will be taken care of.” The Health and Human Capital Foundation would counter that talented candidates probably have the education and wherewithal to make their own decision about time off and healthcare, which leaves more resources for rewards that most effectively retain top performers.

Still others will insist that the employer knows best and should substitute rich benefit coverage and time off for higher wages and rewards, to protect workers from making unwise decisions. Find me a hard-working employee at any level of any company who believes he is unable to make his own personal decisions, and we’ll be happy to revisit this argument. Before employers decide it is their job to manage personal decisions for their employees, perhaps they should reconsider whether employee ownership produces the best outcomes for everyone.

Why this Matters: As companies face leaner budgets, smaller workforces, and a need to stay competitive in a tight economic environment, it will be vital to make the smartest and most effective human capital investments possible. Although many companies traditionally assume the role of “protector,” 21st century work settings will require more partnership and less paternalism. Diverting investments for training, growth and rewards into protective, rich health benefits and time off are policy decisions that actually communicate a lack of trust for employees, and miss the chance to share rewards and responsibilities that lead to mutual success.
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References

1. Kristensen TS. The demand-control-support model: Methodological challenges for future research. Stress Medicine. 1995;11:17-26.

2. CultureRx. ROWE. 2008. Accessed December 21, 2008.

3. Schechter J, Green LW, Olsen L, Kruse K, Cargo M. Application of Karasek's demand/control model a Canadian occupational setting including shift workers during a period of reorganization and downsizing. Am J Health Promot. 1997;11:394-9.

Now that we have a recession, there's never been a better time for defining health as human capital. Entry 25 – 2008.

2008-12-07T10:25:00.006-07:00

We’re all spending less and feeling poorer these days; individuals, families, businesses, and government agencies are all trying to squeeze more out of their budgets. In times like these we recognize more than ever that resources are finite, everything is a tradeoff. Spending more on some services means spending less on others. We fret about the effects of detrimental cutbacks, especially in healthcare.

But economic pressures also create an environment where minds open themselves to new solutions. We invest more wisely, are willing to reconsider our present course, and perhaps are more willing to consider disruptive solutions to old problems—solutions that had once been feared as too big a risk. Perhaps, feeling frugal, we can redirect ourselves toward a better balance of proven investments that measurably improve health—rather than continue our habit of simply spending more for little return.

If there was ever a time for a constructive paradigm change, it is now. Especially when the new paradigm suggests that we can spend less on health services and actually get better human capital outcomes. That new paradigm? Health as human capital.

We use the phrase health as human capital frequently: in our foundation’s name, to define a new philosophy, and to explain a fundamental aspect of what is needed today in healthcare and business. When I speak at conferences, the person in charge of my introduction inevitably stumbles over the phrase a little… perhaps thinking the second word is a typo, “as” should be “and.” I watch facial expressions as listeners wonder momentarily about such an odd phrase.

Although we have written about the health as human capital paradigm before, it remains misunderstood by most. Why did our founder, Dr. Gardner, choose this specific set of words? Couldn’t we have chosen something simpler?

Being clear about what “health” is also clarifies how best to optimize or improve it.
Health is not synonymous with health insurance and cannot be purchased. Health is not simply what remains after medicine removes a disease, nor is it an accomplishment achieved for us by doctors. Health is the functionality and energy inherent in us. It defines one-third of the human capital triad—health, skills, and motivation. Combined, human capital assets determine our potential contribution to our job, community, self, and family. By growing and protecting our human capital assets, we increase our potential to earn more, contribute more, experience more.

Health is the sum of one’s capacity to apply physical and mental energy to what he wants to accomplish or experience. It is the motor and machinery that allow us to use our skills and express our motivation. As such, managing our health is a daily and lifelong activity, requiring us to make choices that will improve and protect our functional capacity while managing inevitable limitations that arise. Health can only have complete meaning in the context of human capital because each person has unique interests, abilities, and desires. So, changes in our health improve or threaten our ability to do the things we want to do; that’s personal and different for each of us.

A broken leg may represent a greater limitation for a physical laborer than an office worker. Laryngitis may feel catastrophic for an enthusiastic radio announcer, but provide welcome time-off for an unhappy receptionist. For one person, managing pain may be a primary concern; for another, medication side-effects such as fatigue may be unacceptable. To a great extent, health is what each person experiences it to be. By extension, what each person needs most to optimize his health will be unique.

If we accept this premise: health is the sum of one’s own capacity to apply physical and mental energy to what he wants to enjoy, accomplish or experience, then several other statements follow logically.

What makes us feel most “healthy” will depend on what is most important to us.
Feeling “ill” has more to do with what limits us or prevents us from enjoying or doing what we value most than what any external disease labels imply.
Because health is ours and only ours, we each have the sovereign right to make decisions about its care.
Health becomes more meaningful when we have goals and opportunities we want to achieve and experience.

This last statement probably differentiates the health as human capital paradigm most clearly. Health isn’t just a status; it’s a vehicle that enables us to feel good, perform and enjoy the activities we believe are worthwhile doing. The more we find our life activities (our job, our education, our hobbies, or relationships) worthwhile, the more we invest in and protect our health.

My economist friends explain this in specific terms: investment is the allocation of resources to augment the quantity and/or the quality of a particular stock of capital (here, human capital). The net value of an investment (i.e., time, energy, and money spent on improving the health stock) depends on the value or reward from being healthier in the broad context of work and leisure activities. Hence, it follows that if our perceived enjoyment of work and life generally is low, a given investment in healthier living will have a lower personal return-on-investment.

We take “health” for granted, especially when we are young, pain-free and without limits. If we could manage to feel good and function well despite smoking, skipping sleep, or eating junk, we probably would indulge ourselves in these “vices.” If we believe someone (or something) else can erase previous transgressions, we may continue making unhealthy decisions and await future medical rescue. And, if we do not have hope for a positive future, we may not care what abuses we inflict on ourselves today. Health isn’t just for its own sake; we value feeling good and functioning well. And the more we value what is in our lives, the more health matters.

The irony is this: focusing on a never-ending list of diseases takes money and attention away from the primary reasons we would spend energy to protect health in the first place. Our society has become so focused on more diagnoses, more medicine, more treatment and more specialists that we have taken resources away from the things that make health matter: the ability to grow our knowledge and skills, a rewarding job with good pay, time with family and friends, sports, music…and all the other things you could add to the list.

The difference is important.
Most often, you will hear us contrast health as human capital with a “Medical paradigm”, or a “Health and Productivity paradigm." Both of these focus efforts on defining health relative to medical problems, which necessarily focuses thinking on medical solutions, namely more diagnosing, more treating and more “managing” of diseases. Simply put, if we attribute excess costs, absences and lost productivity to disease, we land on medical solutions. Unfortunately, this cycle not only leads to more health services and higher costs, it also has the unintended consequence of lessening the intrinsic value of staying well.

One illustration of the difference in paradigms is the documented improvement in the health and social status in Native American tribes that have experienced financial success from tribe-owned casinos. The medical paradigm would say that because increased revenues were now spent on better clinics, outreach and substance abuse programs, tribe members have become healthier. (Note, however, similar government programs were in place prior to the casinos with limited success.) The health as human capital paradigm would counter that new opportunities in the form of high-paying jobs, new business investments and significant enhancement in schools fortified the intrinsic value of health for working-age citizens in those tribes. With increasing prosperity, self-determination and hope, young workers have greater reason to protect health, apply skills and be motivated. While on the one hand, better health may improve productivity, here the reverse is also true. The opportunity to be more productive and have success made health matter more.

So where do we re-balance our investments? What do we spend more on? What do we spend less on? When we define health as human capital, it follows that budgets get redistributed to focus on jobs, skills, wages, and financial security (as well as health security) as the basis for human capital growth. Human capital development leads to individuals’ valuing all aspects of their human capital more, including health. Certainly, we continue to invest in prevention, solid primary care, consumer health accounts, and transparency in healthcare price and quality. But the current momentum toward simply expanding the breadth and volume of insured services, disease-centric programs, high-tech diagnostics and fragmented care only reduce what resources we have available to invest in broader human capital.

The paradigm shift: spend less on fragmented, expensive treatment of disease, and get more health.
How do you see health? As only the absence of disease, or as a goal to be achieved? We’re hoping businesses and government agencies begin to see health as human capital in all the dimensions discussed above.

Why this Matters: One small word— “as”—has profound implications for how businesses and society invest in the future. When we acknowledge health as a personal asset, rather than an external goal, strategies change. The medical paradigm insists we must fight disease at all costs, largely ignoring each individual’s motivation and needs. The health as human capital paradigm recognizes that health increases in perceived value each time a person realizes what health can do for him. Rewarding work, expanding skills, increasing opportunities, fulfilling relationships…all increase the intrinsic value of our personal health. Investing in ALL human capital assets will have far greater impact on health outcomes than spending increasingly large and disproportionate sums on finding and treating an ever-expanding list of diseases.