Financial Wellness

How Governments and Unions Can Protect Their Healthcare Coverage While Reducing Taxpayer Costs

The severity of the healthcare cost and wellness crisis faced by state and local governments is beyond the pale. Combined with unfunded pension obligations, this double-dose of unfunded commitments looms largely unresolved with only the bleakest final chapters in the making.  

Many earnest solutions are no better than the belief that by picking up a few sticks in the yard, it can be declared clean while ignoring the surrounding dead trees and a forecast for high winds. Governments and Unions can do certain things to protect their coverage.

While efforts are being made across the country to solve this double-edged healthcare and pension crisis, its magnitude has already produced signs that the scope and quality of government services will be forever reduced. Indeed, schools, public safety, public works, and other essential services are already on the decline.

Naturally, there has been simultaneous erosion in the health and pension benefits for many employees and retirees - benefits that attracted and retained highly qualified persons to these professions. The magnitude of the problem is unforgiving. In a report summarized by the National Center for Policy Analysis in July 2010, the unfunded liability for health and other benefits for state and local governments stands at $558 billion.

In addition, government pension obligations could be unfunded as high as $2.5 trillion according to the same report. In the healthcare arena, there remains substantial opportunity for governments and employee organizations to innovate and reduce costs without having to concede benefits.

By embracing better insurance systems and addressing the underlying causes of illness, governments and unions will have their best opportunity to control their future. However, in my opinion, a major obstacle to embracing better health insurance systems and philosophies is that many of those seeking ways to solve the healthcare crisis are wedded to the thinking and processes that helped create the crisis.

While traditional systems may change at the edges (e.g, calls to pay family physicians based on outcomes), such systems have proven impotent in resolving the deeper reasons for escalating costs and increased illness. The good news is that governments and employee unions can still work together to bend the cost curve back in their favor.

But to get there, they will need to embrace the thinking and systems common to employers who have taken back control of their costs and health from an industry that has been unable to meet their needs. Simply put, if costs are continuing to increase and employees are not part of a comprehensive wellness program, the employer and employees are being underserved and on a road to nowhere.

As an old saying goes, "If you want to have a breakthrough, you have to break something". This article, while targeted to government employers and labor unions, will give all employers, especially those still in traditional systems, a new start in how to hold their healthcare team accountable and move in a direction of reduced costs, improved health and desired benefits.

Even if the employer stays in a traditional system, these best-practices will assist in building a more accountable relationship. These are only some of the intelligent and progressive steps employers and employees should take - as many have.

Merit-based brokerage service

As a city manager and healthcare executive, I've met and worked with scores of healthcare brokers covering billions in premiums. The broker is typically the employer's most trusted and informed window into the world of healthcare. That said, given the brokerage fee(s), what are you getting from your brokerage relationship?

Can you list in detail how your broker has helped reduce costs and improve employee health? How do you know when your brokerage company is acting in your best interest? Here are three of many best-practices for creating a merit based arrangement.

i.    Create a performance based contract

At a minimum, your contract must cover fees, performance metrics and service expectations. Don't accept the idea that only the broker's standard agreement should be executed. Certainly, the broker may need their agreement signed in order to be paid by the insurance company, but, there's plenty of room for your terms and conditions.  For example, a current colleague of mine, a former airline executive, worked with his broker and carrier to produce annual of performance guarantees with detailed standards and penalties.

ii.    Market sophistication

The broker must be objective and an idea machine. For example, does your broker or brokerage service place a high percentage of contracts for other employers with the same carrier? If so, what is the reasoning? How might hearing from a different broker or carrier help with your purchasing decision? How has your broker presented information about the value of an authentic self-funded plan? What might a different consultant tell you that you haven't yet considered?

iii.    Broker as Advocate

I will never forget my first experience at reviewing and recommending a new healthcare contract for about three-hundred and fifty covered lives. Three decades ago, a broker outlined to me the reasons for a premium increase. And, just like employers hear today, the broker explained that the increase was due to medical inflation and increased plan usage.

By chance, a young broker - whose first name was Jim - made a cold-call at the village hall where I worked. Within minutes of asking to see the person who handled employee healthcare, Jim and I were staring at each other from across a conference room table. When I later called our soon to be former broker and asked some newly learned questions, he said, "I didn't know you wanted competitive quotes. You should have asked me."

Just like a general contractor overseeing construction, sub-contractors, or an auditor writing a management letter, healthcare consultants need to be several steps ahead of the employer with observations and advice. Waiting for the employer to ask the right question is a form of professional services negligence.

Push back against routine explanations for increased costs

With rare exception, the messenger of premium increases has little to worry about. The messenger can predict the employer's reaction and has standard industry answers memorized. The explanation for the next premium increase is typically packaged as (not in any order) follows:

  1. New laws and regulations
  2. Healthcare inflation
  3. Increased employee utilization
  4. Increased cost of drugs
  5. What your employees want is costly

My favorite sales pitch - used coast-to-coast - is the messenger who says: "But not for my efforts, the increase would have been much higher." Routinely, the employer expresses disappointment, probes into some details and eventually asks "What can we do?" Year after year, the traditional consultant and plan representative tells the employer of these options: increase employee premium contributions, reduce benefits, change co-pays or play with plan design.

Occasionally, a public employer may be presented with a "consumer directed" option and ideas for an add-on wellness program. The parties know that many of these steps are difficult if not futile. And so it goes - the annual cost increase seems like a fait accompli. This is not to say that employers don't strive to look at alternatives and make hard-fought changes that barley slows the upward cost curve.

The deeper and seldom resolved reasons for premium increases are far more difficult and require a fuller commitment by healthcare vendors, employers and employees to change; but change they must. These more serious reasons include systemic beliefs and practices embedded in third-rail industry systems and employee expectations.

These healthcare industry practices include ineffective payment processes, payment for services that are medically unnecessary, the lack of a cost-containment process, claim payment cycle times, alleged network discounts, increased occurrence of chronic diseases, and a host of other reasons too numerous for this space.  

While the goal is affordable and quality healthcare for employees and dependents, the blame for the current debacle is wide-spread. The list includes uninformed employers, complicated laws, overly-zealous providers, obliviousness to actual costs, improper use of the plan, risk-management, burdensome regulations, payers overly focused on cycle time, adverse incentives, uncoordinated treatment, inadequate emphasis on wellness, lackluster adherence with medications, limited disease management, and on and on.

Simply put, healthcare is ill. Nationwide, employees, employers, and taxpayers continue to pay out over $2.4 trillion per year in healthcare expenditures. In the end, inefficiencies and errors are passed on to whoever pays the bill.

Employers must learn to deeply probe the reasons for cost increases and require management reports with recommendations covering chronic diseases and diagnostic codes related to complex clinical conditions.

Require a medical claims cost-containment plan

A medical claims cost-containment plan is to healthcare what notes are to a pianist. Cost containment services provide the employer and employee assurance that the plan is being administered properly and unnecessary costs are not paid.

Such services include billing and coding reviews, fraud detection, verification of agreement between diagnosis and treatment codes, network discount verification, precertification, negotiations for out-of-network claims, nurse case management, usage audits, medical tourism and other best-practices.

A health plan, be it traditional or self-funded, that does not provide these and a host of other services, is probably out-of-date. While plans and consultants usually say they provide such services, employers need to test the veracity of such claims by requesting detailed management reports that cover the applicable metrics and benchmarks.

Let's examine one cost containment measure that should be in place. All payers should examine large claims over $10,000, for medical necessity. An expert in medical necessity, typically a board certified physician, will understand how to reconcile diagnosis and treatment codes. Because many traditional payers don't thoroughly examine large claims before they are paid, premiums or clams paid from escrow cover billions of dollars in unnecessary payments every year.

For example, in one study reported by the New England Journal of Medicine, the installation of pacemaker devices (implantable cardioverter defibrillators) failed to meet medical necessity 20% of the time. Another 32% of the implanted pacemakers were questionable. The typical cost for a pace maker exceeds $100,000.

Every payer must prove they are detecting and correcting these claims. As you can imagine, few firms have the skill and know-how to perform this task. The truth is this: large traditional payers focus on alleged "deep discounts" and claim cycle time at the expense of complex medical necessity reviews.

To test this, simply ask your claims-payer and consultant to show you the past two years of large claims they didn't pay based on medical necessity. The reports should include codes for cardiology and other key treatments.

Build an integrated wellness, disease management and prevention plan

Recently, I've met with a number of municipal executives who collectively pay nearly $100 million in annual healthcare premiums to traditional payers. Besides paying too much for employee healthcare, they had one other thing in common - none of their businesses were putting forth a serious effort to address employee wellness.

Just four years ago - when I was a city manager - I didn't aggressively pursue a comprehensive wellness program either. That was my unforced error.The evidence is undeniable. A comprehensive effort to engage employees in their well-being is a modern day imperative if only for this reason: chronic disease is rampant and untreated conditions - coupled with broad disregard for preventative tests - is the main reason for costs increases.

As noted in a recent article in Self Funding Magazine, "modifiable health risk factors" now account for 25% of total employer healthcare expenditures (Renner and Wolver, Mindfullness Training: A Case Study in Managed Care, March 3, 2012. A typical example is an overweight employee or dependent with at least one chronic disease who also neglects recommended tests for known age and sex specific diseases.

Needing treatment for any number of problems, the person arrives at an emergency room with significant conditions and racks up tens of thousands of dollars in expenses that should have been avoided. This is a common cycle.Through positive incentives, better plan design, employee support and education, these medical occurrences can be substantially reduced; many can be eliminated.

The result is healthier employees, better productivity and lower costs.In summary, when it comes to healthcare, what you don't know is causing your costs to rise to unnecessary levels. With shared vision, courage and knowledge, the employer, employees and healthcare vendors can earnestly pursue costs controls and improve employee health.

Their roadmap to success is replete with options and opportunities. Public employers and unions have an unprecedented opportunity to move to a place of greater knowledge and cooperation as they seek to secure and maintain benefits that enhance their livelihood and reward great workers.

About The Author

Peter Burchard is a healthcare and business consultant with Executive Partners, a firm serving the global business and government sectors. His past experience includes serving ten years as the City Manager of Naperville, IL; Chief Operating Officer at inVentiv Medical Management; as well as a board member/moderator for a Chicago area hospital. Peter can be reached at

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