Employers have the power to reduce health costs

Our health-care system is in crisis, with no real solutions on the horizon. Federal health-care reform, for the most part, protects the current system rather than truly reforming it. It remains hard to fathom that a government-sponsored health system is the answer to the massive health cost problem that is holding back our economy.On one side of the crisis are public and private employers, desperate to manage out-of-control employee health-care costs. On the other, sprawling health-care systems operate in a system that rewards volume over value. As a result, while every other segment of our economy is struggling to emerge from the dark days of the current recession, health-care organizations continue to build, buy, and duplicate services. Who can blame them? This is what the system rewards.What if every American automaker were guaranteed a payment of $15,000 for every car they produced, regardless of quality or value? We would be overcome with mediocre cars that we don’t need. And this is precisely what we have allowed our health-care system to become, one that is overcome by excessive services and infrastructure and has lost sight of value. Health care is free from the competitive dynamics that have driven virtually every other industry to become more efficient, increase quality and value and lower costs. It should come as no surprise to anyone that the current system has failed to bring down costs and reduce the need for expensive treatments.The existing model – where contracting is left almost exclusively to such intermediaries as insurance plans, administrators and brokers – has failed us. Costs have escalated at double-digit rates for two decades without demonstrable improvements in quality or outcomes. Again, it should come as no surprise. The further the economic distance between buyer and seller in any market, the more inefficient and ineffective the market becomes.The first step toward meaningfully addressing the current crisis is to bring American employers, who annually spend a trillion dollars providing health coverage to their employees, closer – economically speaking – to the medical providers who actually deliver the services.Envision a system in which businesses exercise their economic power and reward medical providers that actually improve quality and lower cost. Doctors and hospitals that deliver superior value should flourish and draw patients from far and wide. Those who fail to become competitive should bear the consequences. This is the way of the free market, and it has proven its value to consumers in virtually every industry segment countless times over.It is time for American employers to take control of their health expense, like they actively manage every other item critical to their businesses.According to the Kaiser Family Foundation’s 2010 Employer Health Benefits Survey, 59 percent of all American workers are now covered by a health plan that is self-funded by their employer. This number jumps to 83 percent for companies with over 200 workers. These organizations have the direct economic incentive to reduce their employee health expense and hold the economic power to achieve this objective. They simply need to leverage this power by directly demanding more value from health-care providers and rewarding those who deliver.The system will not change itself, as there is too much invested in the status quo. The only force powerful enough to reverse the current crisis is the free market. America’s employers hold the keys to profound change.Donald Crandlemire, a business and health-care attorney, is a founder of Open Health Market, an RFP generation tool that aids employer self-funded health plans.

Categories: Opinion