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It’s a Healthy Expense That CEOs DREAD … Well, WAKE UP!!!

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Most chief executives in America DREAD the nightmare they experience each year when it comes time for their companies’ annual health insurance renewal.

Just as with any nightmare, of course, the answer is to wake up.

Unfortunately, most CEOs can’t wake up from this nightmare because they don’t have a clue how to manage skyrocketing employee health costs — now the third largest expense in business today.

That’s hardly surprising, given that the healthcare industry appears at first to be completely immune from normal market forces and economic incentives. I learned this shortly after I graduated from college with a Master of Health Administration and started running hospitals — 10 different hospitals, in fact, in five different states. And as I traveled the country, I became fascinated with the economics of health care. Costs kept surging year after year, far outpacing inflation or average earnings.

What’s more, there seemed to be a curious lack of checks and balances in the system. As providers, we all made more money the more patients we saw. The government paid us our costs, so the more we spent to attract the doctors who could admit the most patients, the more we got paid by the government.

Where were the market incentives, the economies of scale, that drive other industries? Who had a financial incentive to keep people from falling off the health cliff and getting sick? The answer is, no one did. We all made more money by driving our expensive ambulances up to the bottom of the cliff and waiting for the next person to fall off.

It’s no secret what causes people to fall off that cliff. Poor health habits represent the cause of the majority of health claims. Indeed, six out of seven full-time workers in the U.S. — that’s 86 percent of them — suffer from a chronic health condition.

So it occurred to me that if we can fix a person’s damaged heart when they’re asleep under anesthesia, why can’t we fix a person’s unhealthy lifestyle when they’re wide awake and able to do something about it?

Many of the hospitals that I managed were psychiatric hospitals, and the practitioners that I worked with were psychiatrists, psychologists and counselors. Their primary tool was behavioral change, the principles of which are simple: develop rapport, engage the person in creating his or her own change, and provide ongoing support and encouragement to effect ongoing change.

I decided to apply the same principles in the workplace to help employees get and stay healthy and thereby dramatically reduce claims costs for the whole company. If it worked, it would be a win-win-win for everyone — employees would be healthier; so would the company’s bottom line — and I’d make money, as well.

So I developed an accountability-based wellness program that used financial incentives to draw people in — participants paid half the monthly premium contributions of non-participants — so that health coaches could then employ the same techniques used by mental health counselors to help employees change their unhealthy lifestyles and stop getting sick.

The results were dramatic. In one study we undertook of four mid-sized employers, where 64 percent of the insured had one or more chronic health conditions, participants in our accountability-based wellness program reduced their annual claims costs to $2,269, compared to $6,187 for employees who chose not to participate in the program. And best of all for the employers, the cost of the program was paid for by employees who paid a higher premium for refusing to participate in the program.

We can argue back and forth all day long about the pros and cons of President Obama’s health reform law. But the real battle for the future of healthcare is being fought in the world of business, where tens of thousands of companies have seen their financial well-being undermined by skyrocketing employee health costs.

The leaders in this fight must be America’s CEOs, whose job it is to drive basic market incentives back into the system so they can save their companies from the health-cost cancer that grows bigger by the year.

CEOs don’t need to become healthcare experts. As I noted in my recent article in Bloomberg View — the new high-profile editorial platform of the BusinessWeek media franchise that has 13 million readers a month — all they have to do is apply the same basic management techniques and market incentives they learned how to use back in business school.

That article offered seven simple steps that CEOs can take to rein in spiraling employee health costs. In future blog posts, I will explain these and other techniques that will enable them to achieve a healthier and more productive workforce — and a healthier company bottom line as well.

[EDITOR'S NOTE: This is Part I in a long-awaited healthcare series from Vistage member Darrell Moon, who has been published in Forbes, Bloomberg and numerous other publications. In it he delivers his passionate message that it's the CEO and the CEO alone who has to fix the healthcare crisis on an individual level at their own companies. Stay tuned next week for Part II.]

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Darrell Moon is CEO of Orriant, a wellness program provider serving companies nationwide. He founded Orriant in 1996 to change the dynamics of healthcare and give employers some control over the ever-increasing costs of the healthcare benefits they offer their employees. As a CEO, COO, and CFO, Darrell managed medical and psychiatric hospitals throughout the country for more than 10 years prior to founding Orriant, and he has more than a decade of experience managing insurance and managed care products. Darrell is a Forbes Leadership Contributor.

6 Responses

  1. Bhale Bhc

    It’s about time we CEO’s stopped complaining about heathcare costs and started treating that expense category like all the other ones that we intelligently manage. Why not hold employees accountible for their conduct that drives up our costs and makes us less competitive in the world marketplace?

  2. Anonymous

    It’s shocking how the business press generally ignores the employee health cost crisis — even though, as Mr. Moon points out, it’s now become the 3rd largest expense in business.

    Kudos to this publication.

    And yes, as the previous commenter put it, let’s stop whining and start doing something about it. Isn’t that what CEOs are supposed to do — solve problems? 

  3. Davidducharme1

    Benefits with strings attached and accountability!  Sounds like we CAN use traditional business principles to start tackling health care costs.

  4. Davidducharme1

    Benefits with strings attached and accountability!  Sounds like we CAN use traditional business principles to start tackling health care costs.

  5. Michael Jennings MD

    Programs such as those offered by Orriant are the best way a company can move their employees away from an entitlement/dependency role toward being responsible and accountable for their own long-term health. More extravagant health insurance benefits will not fix what’s wrong in our health care system. Getting individuals engaged in taking care of themselves and paying attention to preventative measures is where we must focus our efforts.

  6. Michael Jennings MD

    Programs such as those offered by Orriant are the best way a company can move their employees away from an entitlement/dependency role toward being responsible and accountable for their own long-term health. More extravagant health insurance benefits will not fix what’s wrong in our health care system. Getting individuals engaged in taking care of themselves and paying attention to preventative measures is where we must focus our efforts.