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

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.

Darrell Moon is CEO of Orriant, a wellness-program provider serving companies nationwide. This article appeared at Vistage’s Executive Street Blog.

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