Many U.S. Companies Can Expect 25% Drop in Operating Profits in 10 Years without Immediate Action, Says Virgin HealthMiles Research Team

The nation’s debt crisis and Corporate America’s profitability have a common enemy: rising healthcare costs.  Despite 1.2 trillion in planned budget cuts, U.S. debt remains a record proportion of the country’s GDP due to years of spending hikes.  Likewise, a cumulative 138 percent increase between 1999 and 2010 in health insurance premiums  and associated costs are putting an untenable strain on businesses’ bottom lines.  Congressional Budget Office director, Douglas Elmendorf, recently stated, “An aging population and rising health-care costs will exert significant and increasing pressure on the budget in the years beyond 2021.” If the CBO is worried about the impact of rising healthcare costs on the U.S. balance sheet, businesses should be concerned about the impact on their books too, says Virgin HealthMiles.  Otherwise they’ll face a profitability crisis of record proportion driven by healthcare costs.

Medical science has historically focused on dealing with pathogens.  In modern times, healthcare problems often stem from behaviors that are driving the demands on our healthcare system.  Unless health policy and business priorities shift to focusing on prevention and helping employees make better health decisions, the financial consequences could be dire:

• According to the CDC, chronic disease drives 75% of healthcare spending today, of which 95 percent is spent on managing current cases of the disease.  Yet just five percent is spent avoiding the onset of these conditions.

• The Milken Institute reports the lost productivity associated with largely preventable chronic conditions like obesity, hypertension, heart disease and type 2 diabetes totals more than $1 trillion, including time lost for employee and caregiver workdays and individual and caregiver presenteeism.

• A Virgin HealthMiles research team recently conducted an economic study on the impact of chronic disease on U.S. company profitability and found if the last decade’s trends continue and companies don’t increase prices or productivity, by 2021 the average company in key industries such as finance and technology can expect to see a 25% decline in operating profits.

“Years of spending to treat preventable chronic conditions has failed to make us healthier as a nation; instead, it’s imperative businesses help employees become better ‘users’ of their bodies and more educated healthcare consumers, starting with the value of prevention,” commented Tom Abshire, senior vice president of marketing and member engagement for Virgin HealthMiles.  “Otherwise, our research shows companies are poised to take a potentially disastrous hit to their financials, which could threaten any sort of long-term economic recovery for our nation.”

Traditional corporate wellness efforts, where employees complete HRAs and self-report biometric and physical activity data, have consistently failed to motivate employees to become better health consumers.  Businesses must abandon this wasteful, ineffective spending and focus instead on prevention-focused, technology-based employee wellness solutions that are proven to have an impact and engage employees in long-term behavior change.

By focusing on prevention, employers can improve workforce health and avoid the onset of the costly medical conditions that drive the bulk of today’s healthcare spending.  With Virgin HealthMiles, employers ensure their employees see the short-term benefits to better health by providing cash or premium discounts.  And instead of just hoping an employee wellness program is making an impact, organizations can see their investments are driving real health improvements and lowering healthcare costs thanks to validated data provided by Virgin HealthMiles’ technology-based solutions.

Employers have a unique opportunity to align their interests with those of their employees and help them take more accountability for their health.  Most U.S. adults spend a third of their lives in the workplace and data shows workplace social connections play a powerful role in driving better health decisions. So before businesses find themselves in the same cash-strapped position as the U.S. government, now’s the time to take action.

MetLife recently released their 9th Annual Study of Employee Benefit Trends. The survey is filled with information on trends in employee benefits, and one section of that is trends in health and wellness strategies. The survey found that health and wellness programs have become a mainstream staple for many organizations, and one that is producing results.

Employers who offer wellness programs believe that they work; 72% say that they are effective at reducing medical costs, and over half of employers surveyed believe that health and wellness programs are effective for improving productivity through reduced absence — a number that rises
to 76% for companies who provide wellness programs.

Wellness programs have steadily increased over the past few years, from 33% of companies offering them in 2008 to 45% offering them in 2010. Growth in larger companies (over 500 employees) has also been increasing from 57% offering programs in 2008 to 71% in 2010.

The survey also found that wellness programs can help drive employee loyalty. Employees who participate in wellness programs are more likely to report loyalty to their employer and perceive that their employer is more loyal to them. In addition, they are more likely to say that benefits are a reason they remain with their employer.

Healthcare costs, along with employee retention, remain a top concern for organizations. Employee health and wellness programs can help organizations reduce costs, increase productivity and loyalty, and give employees an improved quality of life.

Out of control healthcare costs have become a board-level issue for virtually every U.S. organization and employers are increasingly recognizing that helping their employees become healthier can make a substantial impact on costly, preventable lifestyle-related diseases.  However, we do still get a lot of questions on how organizations can fund a health and wellness program in this challenging economic climate. Within our own client base, some have done it on an entirely cost-neutral basis to their income statements. They do this and still manage to pay the participating portion of their employee base hundreds, if not thousands, of dollars in health incentives by balancing pay outs or reductions in next year’s premiums with offsetting increases in employee contributions, deductibles, co-pays, or reduced HSA funding for those who choose not to comply or engage in healthy behaviors. Other clients offer the program as a pure benefit.  Let us take you through a couple examples of ways clients we’ve seen clients fund their programs today. (more…)

Join us Thursday, January 27th, 2011 at 2pm EST for the webinar How to Finance your Employee Health and Wellness Program.

Prevention is the best strategy for companies to combat rising healthcare costs. But these skyrocketing costs make it difficult for many companies to afford employee health programs. What’s the solution to this catch-22? With smart plan design and the effective use of incentives strategies you can now finance employee health programs in an essentially budget-neutral manner. During this interactive webinar, Sean Forbes, President of Virgin HealthMiles, will discuss funding strategies and answer your questions. (more…)

Sadly, I’ve had quite a lot of experience talking to employers about failed wellness programs.  Among the common reasons for failure – including low participation (a dismal 15% average); trust issues (employees don’t want to provide insurers personal data for fear it will be used against them); reliance on self-entered data (which can mean tedium and inaccuracy); and no compelling call-to-action, like, say “Take care of yourself and you could earn a lot of cash and big discounts on your health insurance!” – we hear over and over that most programs don’t allow an employer to point to quantifiable improvements in employees’ health. Without this measurement ability, there’s no way to justify the investment in the program, which means wellness will continue to hover at the bottom of priority lists.

So how do you ensure, when you’re evaluating programs, that you can measure its impact and tie it to your company’s bottom line? Consider the following: (more…)

Companies across the country are feeling the effects of an unhealthy workforce. Lifestyle-related chronic conditions are driving more than 75% of today’s healthcare costs. Premium costs are rising on average 10 percent per year, the majority of which businesses incur. And today’s 7 most prevalent chronic diseases represent nearly $1 trillion in lost economic output. American business has reached a tipping point where unmanaged, preventable healthcare costs have become one of the largest drains on their income statements. 

Beyond businesses, rising healthcare costs increasingly burden the American worker.  The American Journal of Medicinereports more than 60% of U.S. bankruptcies are due to medical bills.  Savvy employers know they must take a leadership role in curbing healthcare costs to protect their employees and their bottom lines. A PricewaterhouseCoopers study  showed 94% of employers believe they can do a better job supporting their employees in managing their health to reduce costs and improve business performance. (more…)

According to a recent information gathered from the Q4 Glassdoor.com® Employment Confidence Survey of 2,118 U.S. adults aged 18+ conducted on its behalf by Harris Interactive®, employees report the highest rate of health and dental benefit cuts in two years.

“While reported cutbacks in other areas declined or remained at the same level from the third quarter, health and dental benefit cuts peaked at the highest level in two years following steady quarterly increases. This quarter, 28 percent of employees who cited at least some changes reported cuts to their health and dental benefit in the past six months, compared to 22 percent in the third quarter and 17 percent in the fourth quarter of 2009. Meanwhile, employees reported fewer cuts in perks (i.e. commuter subsidies, free food, tuition reimbursement) (12 percent) and hiring freezes (24 percent) than in previously reported quarters. The rates for furloughs, unpaid leave and/or mandatory vacation (17 percent) as well as job restructurings/redundancies (11 percent) remained unchanged from the third quarter.”

(more…)

American business is reaching a tipping point where, left unmanaged, preventable health care costs are becoming one of the largest drains on their income statements.  Some studies show that at the current rate, 1/3 or more of a many companies operating profits may be lost over the next 10 years based solely on the rising cost of healthcare, if they cannot reduce costs or increase prices for their goods and services.  And, those costs don’t just threaten company profitability.  They threaten jobs, and the livelihoods of our employees.  (more…)

A recent survey by Towers Watson, Employee Perspectives on Health Care
Part I: The Affordability Gap, examines the perceptions employees have on Health Care. They found that employees are taking fewer actions related to their health care this year than they did in previous years.

One in five employees has not taken any action to reduce their health care costs. Despite the fact that rising costs have increased stress levels for more than a quarter of employees — and made it more difficult for almost one in five to save for retirement — the number taking significant action to control their health care costs hasn’t increased significantly since 2007 (Figure 8). Although nearly three in five (57%) are taking better care of themselves, there have been drops in many steps taken — both positive and negative. For instance, despite the high percentage of employees taking better care of themselves, this number has seen a 14% drop since 2008.

Employees are more risk-adverse and employers must respond by finding ways to encourage employees to become proactive and take control of their health. The survey also shows that High Deductible Health Plan (HDHP) enrollees show more initiative than other employees in taking practical steps to control their health care spending with efforts like putting aside money for specific medical expenses and using company weight loss and smoking cessation programs to improve their health. As employers to continue moving towards account-based health plans, this could encourage employees to be more accountable for their health and take action to live a healthy lifestyle.

Last Tuesday, the Republicans regained control of the House of Representatives.  Leading up to this shift in power, many Republicans were campaigning to “replace and repeal” the health care reform bill that was passed in March.  While it’s unlikely that the reform bill will be repealed – Democrats still control the Senate and occupy the White House – it’s more likely that Republicans will engage in procedural blocking  of the bill’s roll out.

What does this mean? It means that the climate of uncertainty already surrounding the bill just got murkier. It means the period of uncertainty just got longer. And it underscores the message that private organizations must act now instead of waiting for Washington.

I can’t state more plainly, or more urgently, that companies must have a data-driven, actively managed approach to prevention in their workplaces if we’re truly going to reform health care and its spiraling costs. We can debate the merits and deficits of the Patient Protection and Affordable Care Act all we want, but unless we sharpen our focus on preventing the illnesses that drive costly claims, that bill risks being minimally effective at best, or completely failing at worst.

Unmanaged, preventable health care costs are one of the largest drains on corporate income statements. But as an employer, you have the power to change that. Do what you can to encourage and support healthy behaviors amongst your staff, create a culture of prevention in your workplace, and you can avoid the healthcare costs whose drain on corporate P&Ls  is threatening American business’ global competitiveness.