Walgreen Co. become the latest large employer to make significant changes to its employee health plan when it announced that it will move approximately 160,000 of its employees onto a private health insurance exchange, starting in 2014. The strategy is starting to look like a trend: Over the last several months, IBM, Time Warner, Sears Holdings and Darden Restaurants have all made similar announcements.

The logic behind this approach is straightforward. Under the new plans, employees will be given a fixed sum of money each year and will then choose their coverage and insurer from an online marketplace. The plans give employees the flexibility to select the plan that’s best for them and the marketplace model creates competition among insurers, potentially lowering health care costs. 

But will it work? Or is the health insurance exchange model destined to become another footnote in the long list of health insurance schemes that never quite lived up to their expectations, such as HMOs, PPOs and EPOs? The answer to that depends on whether the companies implementing these exchange-based plans are focused on long-term or short-term results. 

The short-term benefit is an easy sell. Exchanges are designed to save companies money. Though it has slowed a bit recently, the 2014 rate of health care inflation is projected to be 6.5%, according to PwC. That’s over four times the total U.S. rate of inflation. It’s simply untenable for large corporations to compete in the global economy with this kind of financial headwind. So any new health insurance model that promises to spur competition among insurers and lower total costs will get the attention of the C-suite.

The long-term impacts are a little less obvious and a little harder to calculate because they involve the health and productivity of the workforce. Consider the recent health care experiences of Johnson & Johnson, Navistar and PPG, who have all found that providing more comprehensive health-related benefits and programs to their employee populations have actually helped to reduce overall health care costs. 

In Johnson & Johnson’s case, after analyzing the cost of treating chronic conditions related to obesity, high blood pressure, high cholesterol and tobacco use among their employee population, they implemented a companywide wellness program to address these issues and prevent their occurrence from the start. Though the company invested more upfront to implement the program, once the program was up and running, it ended up saving $565 per employee per year on health care costs. In the end, Johnson & Johnson saved between $1.88 and $3.92 for every dollar it  spent to implement the wellness program. 

There is logic behind this. By strategically tailoring health promotion and wellness programs to address common conditions in its workforce, Johnson & Johnson found that more employees engaged in their own health care and actually followed doctors’ orders, took their medications and — over time — became healthier and less expensive to treat. Similarly, Navistar and PPG were able to reduce overall medical costs by increasing their investment in wellness, risk reduction and disease management.

Dozens of peer-reviewed studies support these anecdotal examples. Put simply, a healthy workforce is a competitive advantage. Accordingly, benefit designs guided by a long-term vision for population health improvement rather than short-term cost benefits result in better overall financial outcomes.

A study I co-authored recently in the Journal of Occupational and Environmental Medicine makes the financial case for a healthy workforce even clearer. By studying the relationship between workforce health and financial performance, we found that companies that have been recognized for their outstanding approaches to health and safety by the American College of Occupational Medicine’s Corporate Health Achievement Award outperformed the S&P 500 for the 15-year period between 1997 and 2012. 

Our hypothesis was tested against four model scenarios, each tracking a $10,000 investment in a portfolio of award-winning companies. Corporate Health Achievement Award winners were shown to outperform the S&P 500 in every scenario, with excess annual returns ranging from 3.03% to 5.27%, depending upon portfolio construction. The portfolio of companies in the study consisted of a group of U.S.-based multinational corporations including American Express, Bristol Myers Squibb, Dow Chemical, IBM and Johnson & Johnson, among others. A total of 29 companies were included in the analysis.

It is noteworthy that one of the companies in our study — IBM — is also one of the large employers who recently announced a new insurance exchange model designed specifically for their retiree population.

What this all means is that population health and bottom line company performance is much bigger than the financial construct of an insurance plan. Will it be possible to deliver world-class employee health care and enjoy the many benefits of a healthy workforce through a private insurance exchange?  Absolutely. But it is also possible that many firms will fall into the fix-it-and-forget-it trap, believing that they have solved their health care problems simply by implementing the latest and greatest health benefits model.

The early adopters of the health insurance exchange model have an enormous opportunity to set the new standard for workforce health. If they commit themselves to redirecting their short-term cost savings into long-term population health initiatives it will produce a competitive advantage in the marketplace. If their approach is simply to reduce short-term costs by implementing a new insurance scheme, they will fall tragically short in the long run as other employers have done in the past by falling victim to benefit design myopia.

Raymond Fabius, MD, CPE, FACPE is co-founder and vice chairman of HealthNEXT, a leading developer of population health strategies, and author of “Population Health: Creating a Culture of Wellness.”

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