The health care system in the United States is in crisis, and it has become a business crisis. Costs are spiraling upward, and the implications for businesses and their employees are profound. As employers struggle with unrelenting, double-digit health-insurance cost increases, some firms have decided to drop coverage entirely and many others have shifted costs to employees. And the quality of the health care being paid for by companies and their workers remains highly uneven despite the ever-increasing amounts of money devoted to improving it.1
Underlying such problems is a broken health care market. Unlike companies in other markets, health care providers and organizations lack sufficient incentives to innovate broadly or to improve quality. Similarly, consumers are unable to make health care decisions in the same way they make decisions about purchasing education or housing. And businesses that are rigorous and demanding purchasers of other goods and services are meek and ill-prepared when it comes to purchasing health care. In no other area of supply would they tolerate such cost increases and uneven quality.
The seriousness of the problem is underscored by a recent survey in which U.S. CEOs ranked health care benefit costs as their number one economic pressure.2 To put the issue into perspective, consider that Sprint Corp. would have to add $750 million in sales just to absorb next year’s projected increases in its current health plans. As the vice president of benefits for a large company told us: “Health care is a disaster. Every line in our income statement has an officer’s name attached to it. Our CEO points out that I have my name on the one item that is out of control.”
An even bigger profit drain for companies than health insurance may be “presenteeism” — in which employees are present for work but are less productive because they are ill or preoccupied with the health of a loved one. A study of nearly 29,000 U.S. employees estimated that absence and reduced performance caused by common pain conditions cost more than $60 billion a year. More than three-fourths of the lost productivity was explained not by absenteeism but by lower performance while at work.3 Through research at several U.S. locations, Dow Chemical Co. has projected that presenteeism is its largest health-related economic impact, ahead of absenteeism, health insurance and workers’ compensation.
1. Problems with the system are well documented in the health policy and medical literatures. For several comprehensive sources of information, see Institute of Medicine, “Crossing the Quality Chasm: A New Health System for the 21st Century” (Washington, D.C.: National Academy Press, 2001); D.M. Berwick, “Escape Fire: Designs for the Future of Health Care” (San Francisco: Jossey-Bass, 2003); and M.R. Chassin, E.L. Hannan and B.A. DeBuono, “The Dartmouth Atlas of Health Care 1999” (Lebanon, New Hampshire: Dartmouth Medical School, 1999).
2. Business Roundtable, “Business Roundtable December 2003 Economic Outlook Survey” (Washington, D.C.: Business Roundtable, 2003).
3. W.F. Stewart, J.A. Ricci, E. Chee, D. Morganstein and R. Lipton, “Lost Productive Time and Cost Due to Common Pain Conditions in the US Workforce,” Journal of the American Medical Association 290 (Nov. 12, 2003): 2443–2454.
4. This statement and many others that appear in this article come from interviews conducted by the authors. The research process is described in “About the Research.”
5. P.E. Greenberg, S.N. Finkelstein and E.R. Berndt, “Economic Consequences of Illness in the Workplace,” Sloan Management Review 36 (summer 1995): 26–38.
6. R.Z. Goetzel, R.J. Ozminkowski, J.A. Bruno, K.R. Rutter, F. Isaac and S. Wang, “The Long-Term Impact of Johnson & Johnson’s Health & Wellness Program on Employee Health Risks,” Journal of Occupational and Environmental Medicine 44 (May 2002): 417–424.
7. B. Cutler, “Putting Pricing in the Picture: Shielding Consumers From True Costs of Healthcare Diminishes Their Responsibility,” Modern Healthcare 33 (Nov. 10, 2003): 22.
8. L.M. Schwartz, S. Woloshin and F.J. Fowler, Jr., “Enthusiasm for Cancer Screening in the United States,” Journal of the American Medical Association 291 (Jan. 7, 2004): 71–78.
9. S. Leatherman, D. Berwick, D. Iles, L.S. Lewin, F. Davidoff, T. Nolan and M. Bisognano, “The Business Case for Quality: Case Studies and an Analysis,” Health Affairs 22 (March/April 2003): 17–30.
10. J.F. Bailey, D.V. Gibson and N.A. Tate, “The Diabetes Epidemic in Tennessee,” University of Tennessee Health Science Center, 2003.
11. Mayo Clinic Health Management Resources, “E-Health Management Case Study: Adolph Coors Co.” (Rochester, Minnesota, 2002).
12. B. Abresch and E.A. Deas, “Fighting Obesity at the Nation’s Largest Railroad,” Absolute Advantage 1 (April 2002): 16–17.
13. A.C. Enthoven, “Employment-Based Health Insurance Is Failing: Now What?” Health Affairs Web Exclusive (May 28, 2003): W3-237–249.
14. J. Maxwell, P. Temin and C. Watts, “Corporate Health Care Purchasing Among Fortune 500 Firms,” Health Affairs 20 (May/June 2001): 181–188.
15. P.R. Salber and B.E. Bradley, “Perspective: Adding Quality to the Health Care Purchasing Equation,” Health Affairs Web Exclusive (Nov. 28, 2001): W1-93–95.
16. National Center for Chronic Disease Prevention and Health Promotion, “Chronic Disease Overview,” www.cdc.gov/nccdphp/overview.htm.
17. R. Ceniceros, “CalPERS Health Plan Decides To Go Steady,” Business Insurance (May 19, 2003): 1–2.
18. National Committee for Quality Assurance, “The State of Health Care Quality 2003: Industry Trends and Analysis” (Washington, D.C.: National Committee for Quality Assurance, 2003).