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UTILIZATION DROPS SHARPLY WITH INDIVIDUAL RESPONSIBILITY
IN THE MIDDLE of my eighth physical therapy session following surgery to repair a torn quadriceps tendon, I thought, “Haven’t I been here before?”
The answer was “Yes.” The eighth session was an exact repeat of the sixth and seventh. The therapist, who had done excellent work rehabilitating my knee in the early sessions, was now only passively overseeing my workout. I was doing the drills on my own. He was doing paperwork.
Because I was in a consumer-driven health plan, I asked him how much he was charging. It was $60 per unit, he said. What is a unit? Fifteen minutes. So he was charging $240 per hour. Not bad pay, but the guy did have a master’s degree. (That was back in 2004. By 2010, rates had more than doubled to $500 an hour!)
I started thinking about my deductible and the co-insurance. At that point, I thought I could do the exercises on my own. The therapist and my orthopedic surgeon agreed.
That decision saved me and the company a couple grand.
Such rational reductions in utilization were the most immediate impact of Serigraph’s switch to a consumer-driven plan in 2004. A snapshot analysis after the first year in the plan showed a 17 percent drop in utilization.
As an example, Resa Wronski, a commercial artist at Serigraph, recently warned all her co-workers to avoid expensive ambulance rides whenever possible. Her husband was moved twenty miles by ambulance from one hospital to another. The bill was $1,250, and they paid half. He didn’t need paramedic care, and Resa could have driven him for the cost of a gallon of gas.
Getting our people off a nearly free lunch—low deductibles, low co-insurance—for health care really helped. They began to think and act like the responsible consumers they are in other parts of their lives.
After six full years in Serigraph’s consumer-driven plan, utilizations have remained low. In 2009, inpatient admissions were 23 percent below the norm in the country, outpatient hospital visits 23 percent below, physician visits 24 percent lower, and emergency room visits 39 percent lower.
In short, the drop in utilization to appropriate levels drops immediately once the right incentives are in place, and it stays there. This is enduring change.
In contrast, Medicaid patients in Wisconsin, who get free care, often call 911 and then requisition ambulances for trips to emergency rooms for minor illnesses. ER doctors are outraged by the costly abuse.
The heart of any well-run human system is individual responsibility. Without that underlying platform, no organization or system can work well.
It has been a long tenet of Serigraph to “demanage”—to put decision-making into the hands of the people doing the actual work in what we call natural work units. Those can, for example, be a manufacturing cell, a sales group or an accounting team. An organization is much more dynamic, responsive, creative, and effective if appropriate decisions are made in natural work units instead of from the top.
That philosophy applies especially to big initiatives like total quality management, customer intimacy, lean operations, and innovation.
We have learned that empowering our co-workers to help manage health costs also works. Give them the right tools and incentives, and they become intelligent decision-makers.
Sometimes we use disincentives, like an immediate co-pay of $100 for use of an emergency room when it’s not a real emergency. But mostly we have used incentives.
John Gildersleeve, a manufacturing supervisor, jumped into our incentive plan with both feet. He competes every February in the American Birkebeiner, a hilly, thirty-two-mile cross-country ski race in northwestern Wisconsin, the skiing equivalent of the Boston Marathon. He is a fitness buff who works hard to avoid hospitals and doctors. He had zero utilization of health insurance for several years.
Accordingly, as an intelligent consumer, he opted for the highest deductible plan of our three options, $1,500. As an offset, his health reimbursement account (HRA) had grown to $6,562 by 2009. It’s there for future medical bills.
In the case of Serigraph, there is a company HRA account in his name that he can draw against. We put cash in when an employee draws on the account. Other companies use an HSA, an account whose popularity is increasing in this country (see Exhibit 3-1). That device requires a company to put cash in a personal account for each employee, so it is a bigger up-front cash commitment.
HSAs are tax-free going in, tax-free on the build-up in the HSA investment, and tax-free going out if used for medical purposes.
Both HRAs and HSAs introduce responsibility into individual behavior, with positive effects on consumption of medical services. There were an estimated 20 million Americans in HRAs and HSAs by early 2010, split about evenly.
EXHIBIT 3-1
 
HSA Growth
015
Critics of high-deductible plans contend that they breed under-utilization of medicine. We have not experienced that at Serigraph. We believe, however, that over-utilization has mostly disappeared.
Besides, we make all prevention and wellness services free, and doctor office visits cheap at only $20. We want our people to consult their physicians early and often, before an illness becomes a problem.
In contrast, we have nearby examples of over-utilization. Our local school system, with whom we shared a database and network in the 1990s, has low deductibles, premiums, and co-insurance, and its employees used four times as much mental health care as the fifteen other local employers in the group. The stress of their jobs doesn’t explain a four-fold difference. Because the benefits were virtually free, they were over-utilized.
In speeches on health care costs, I recount that when I was in the U.S. Marine Corps, Friday night happy hours featured ten-cent martinis. On occasion, I over-utilized. It is human nature to take advantage of near-free stuff.
Another criticism of consumer-centric health plans is that they are just a way of shifting costs from the company to employees. And, certainly, some companies have cost-shifted.
But they don’t have to. We don’t at Serigraph. We had a long compact with our employees that the company will pick up 75 percent of the annual health care bill, and the employee premium would cover the remaining 25 percent. That is about the national average for the employer/employee split.
We made it a fundamental principle when we went to the consumer-driven plan that we would maintain that split. It varies a little year to year, depending on occurrences. In 2008, it had moved to a cost sharing of 80 percent company and 20 percent co-workers. So Serigraph was picking up a bigger, not smaller, percentage of the tab.
The best news for Serigraph’s co-workers is that we have raised premiums only three times in the seven years since restructuring our incentives and disincentives. In 2010, our seventh year into consumer-driven concepts, we saw our third hike, about 8 percent. Our 2009 experience, on which 2010 premiums were set, was not good. However, that increase is still in sharp contrast to hyper-inflation of health care premiums elsewhere in Wisconsin and the United States. In Wisconsin for 2010, premiums increased as much as 17-35 percent for fully insured plans. Small businesses and their insurance brokers have confirmed those painful price hikes.
If anyone needs to be convinced about what kinds of health plans work, look at the employers who ought to know best—namely, health insurers and health care systems. They are in the medical game all day, every day as providers. But they are also users of the system with large work forces.
Humana’s first-year success with its own employees in 2003 proved to be no fluke. Its annual increases through the decade continued at less than 5 percent per year.
Our instinct to follow Humana’s lead paid off.
Not surprisingly, most major insurers and hospital systems have followed suit with their work forces. That’s so telling.

OTHER EXAMPLES OF CONSUMERISM

If these companies that are experts in health care are believers in consumer-driven plans, shouldn’t the rest of employers, private and public, get aboard the employee-empowered bus?
Indeed, that is what’s happening across the land.
KI, a large furniture manufacturer in Green Bay, Wisconsin, made its consumer plan mandatory in 2006. When it employed a deductible of $2,500, offset by a $2,500 HSA, it saw an immediate, sharp drop in utilization and overall costs. KI has stayed about $2,000 below the state average costs per employee.
Tim Sullivan, CEO of Bucyrus International, a global manufacturer of mining equipment based in South Milwaukee, Wisconsin, convinced the Steelworkers Union in 2007 to go to a $2,500 deductible plan, offset by a personal health account. All employees, including Sullivan and the management team, are on the same plan. Immediately, its health cost inflation ceased. A Bucyrus union leader told me health costs dropped 22 percent.
In Manitowoc County, Wisconsin, Bob Ziegelbauer was aghast at the county’s hike in premiums after he was elected county executive. Ziegelbauer knows numbers; he holds an MBA from Wharton. In 2007, he was looking at an Anthem Blue Cross and Blue Shield quote of $19,000 per employee, or roughly double that of private payers in the state.
He went to his three hundred employees, who were in seven different bargaining units, and asked them to consider a plan with a $1,500 deductible and $3,000 personal health account. The quote for that plan—with the same coverage and same network of providers—was $12,000 per employee. That is 40 percent lower.
Why would that be?
It is because the actuaries at Blue Cross know that behaviors change remarkably when people have “skin in the game,” even if the personal health accounts were given to them. It becomes the employee’s money. Primarily, it is intelligent self-rationing that kicks in.
That is the initial behavior improvement, but it is quickly followed by better purchasing behaviors, improved lifestyles, and regimens to keep chronic diseases under control.
Ziegelbauer got non-union employees and six of the seven units to go along and then shared about half of the savings with the employees. His 40 percent premium reduction squares with the national experience, where consumer-driven plans have shown premium reductions of 20-60 percent.
In the central part of Wisconsin, the North Central Alliance, a three-county organization of nursing home workers, had a similar experience. Its one thousand workers, low-paid members of the Service Employees International Union, had seen no raises for several years—not good when you are only slightly above minimum wage. Runaway health costs had crowded out raises.
The solution? It was a consumer-driven plan called “Get More” in 2007. Each worker got a debit card and health account to use against higher deductibles and co-insurance. The savings were 12 percent in year one, and the administrator decided to use the savings to give raises to the workers. They got another raise in 2008. The workers were elated.

HSA TOTAL KEEPS GROWING

The number of personal health accounts has grown steadily in the United States since it was introduced in the late 1990s. The accounts grew from six million in 2007 to eight million by 2009. They will keep growing in number because they work.
The number of high-deductible health care plans is also growing. Estimates for 2009 showed that 23 percent of Americans under sixty-five now have high-deductible plans, and one-half of the individual market has gone there. That number has grown, because those plans produce behavior change. Therein lies their affordability.
Expect to see a flood of new HSA accounts in 2014 when the federal government’s bill kicks in to mandate health insurance coverage. Some individuals will choose to pay the small fine and still go uninsured, but many will seek affordable coverage, and that often means a consumer-driven plan with a high deductible and offsetting health account.
And they work as soon as they’re introduced. The large insurer Cigna released a report in early 2010 that showed costs dropping by 14 percent in the first year of a consumer-driven plan and accumulating to 26 percent in the fourth year as people become better consumers.
We have deduced that happens because people like being in control of their health care economics. They want the right to choose doctors and treatments. They want to make decisions on rationing for themselves, not have faceless bureaucrats do it for them.
They also deeply appreciate that the company is taking a huge interest in their health.
As a result, Serigraph’s health plan ranked highest of all aspects of the company in an employee survey three years into our reforms. Our health plan has proved to be a morale booster and a recruiting and retention advantage.
Tammy Burdey, who joined the company two years ago as a credit analyst, takes advantage of our on-site dietician in order to keep her diabetic condition under control. She said Serigraph’s plan is far superior to other places where she or her husband have worked. “I’ve never been healthier than since I’ve been involved with health care at Serigraph,” she said.
An employee survey late in 2009 showed 220 of 370 respondents “always happy” with the Serigraph health plan, 138 “sometimes happy,” and only twelve, or 3 percent, “never happy.”
Most co-workers have come to think of the health plan as their plan. They own it, at least part of it. And they start to view their health as a personal asset.
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