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.