Health benefit costs are ranging upwards of $1.2 trillion for all U.S. employers and are estimated to increase by nearly 6%, on average, every year for the next 10 years.
To gain a better understanding of how employers think about healthcare, Harvard Business Review Analytic Services recently surveyed more than 150 business leaders at large organizations that self-fund employee health benefits. The results revealed that health benefits continue to be a top priority for most, but many business leaders fall into ingrained mindsets about managing them.
About half of business leaders consider benefits teams to play strategically important corporate roles. Ali Diab, chief executive officer for Collective Health, says the biggest question that needs to be asked about the health insurance industry is, why are we paying so much for something we get so little from?
“From recent changes in the U.S. healthcare reform to the quantified self-movement, our airwaves and headlines have been brimming with opinions, strategies and statistics designed to provoke discussion around how to heal an ailing U.S. healthcare system that has become increasingly outmoded, overpriced and underwhelming in its results,” Diab says.
Despite only half of employers seeing benefits as strategically important, there is an emerging class of leading organizations that treat benefits like any other part of business, and it is showing positive results.
These organizations are utilizing tools and technologies to move away from the status quo to manage benefits spending based on data about employee needs and how effectively different efforts meet those needs.
“While the past two decades have offered employers few tools to manage the climbing costs of care, there’s a clear and growing trend to solve this problem with new solutions and technologies,” Diab says. “Strategic employers are adopting everything from new types of care arrangements, integrated and predictive analytics, centers of excellence and payment models that help them maximize their investments and take better care of their people.”
At least 58% of business leaders expect healthcare to be a higher or much higher corporate priority over the next three years, according to the Harvard Business Review Analytic Services survey. Virtually none, only 1%, expect it to decrease in importance, with the rest saying the priority level will remain about the same.
This is because health benefits are such a large and growing expense. Average family insurance premiums were $18,142 in 2016, up 20% from 2011, according to the Kaiser Family foundation, and since 1999, they’ve risen 191% and they are projected to rise 6% per year for the next 10 years.
A main source of power that is often lacking is a solid infrastructure around health benefits information. Roughly 50% of business leaders say the tools or resources they have now are lacking relative to what’s available to other parts of the business, according to the Harvard Business Review Analytic Services survey.
“In dozens of conversations with data vendors and employers alike, there is a consensus that there is great potential in data, but that potential is not close to being realized,” says Tevi D. Troy, CEO of American Health Policy Institute.
Also see: “How Microsoft could reinvigorate HR.”
Beyond the many legal protections that restrict how employers use employee health data, relevant data points are frequently scattered across multiple providers, with no common platform for analysis.
“So many different entities have parts of the data puzzle, and few of them are willing to share what they do have,” says Troy. “As a result, few benefit leaders have figured out the best way to capture the mountains of available data, analyze it appropriately and then use the data to reform the way healthcare is delivered.”
The second issue is without a common platform, the large sums of data points that are available to employers can cause more confusion than clarity. “The technological problem we face in terms of data in one of vision rather than capability,” says Troy.
Because of the gaps in available information, employers rely heavily on their annual cost metrics to guide future spending, instead of measures of value, efficiency or strategic impact.
Total healthcare spend and spending changes year to year are by far the most common measures of effectiveness, according to the Harvard Business Review Analytic Services survey. Around 70% of respondents use at least one of these cost metrics. 47% of companies consider employee health and wellbeing, 44% use employee satisfaction with benefits as a yardstick and 28% look at hiring and retention patterns.
Quality over cost
Organizations with strategic benefits teams are more likely than others to strive to offer above-market benefits, with 56% agreeing, compared with 44% from other companies. In other words, above-market benefits are a signal that an organization prioritizes employee wellbeing, and they often lend an advantage when it comes to recruiting and retaining employees.
Providing above-market benefits does not necessarily mean spending more. Companies using leading-edge practices, such as defining centers of excellence for particular procedures and offering web or app-based wellbeing programs, and covering telemedicine, paid 4.6% less per employee on healthcare in 2015 than companies that used fewer, according to a Mercer study of large companies.
Another way strategic benefit leaders distinguish themselves is how they tend to use outcome-oriented metrics to assess their efforts, rather than cost metrics alone. Two-thirds, or 66%, of those with strategic benefits teams say their organization looks at employee health and wellbeing, compared to 24% of others.
About half, 53%, look at employee benefits satisfaction scores, relative to 33% of others, while 48% consider employee engagement, compared to 31% of other organizations.
“The first step is having access to all of the right data and truly incorporating that into your strategy,” says Gillian Printon, a senior partner with Mercer. Employee satisfaction with benefits and employee engagement, for example, are key touch points for Silicon Valley companies in a talent war.
The most cutting-edge companies are taking that data and combining it with other workforce data to understand whether a new initiative focused on women’s health helps retain female employees.
With an increasing set of technology solutions such as digital health solutions and consolidated data platforms to stimulate new management approaches, companies that don’t take this active approach to managing their health benefits are likely to feel even more pain in their bottom lines. “Unless employers take action soon, health costs are going to continue to increase for them,” says Troy.
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