After meeting on Monday with healthcare industry professionals, President Obama met on Tuesday with business leaders to explore innovative ways to contain healthcare costs. The attendees included the CEOs of Johnson & Johnson, Safeway Stores and Pitney Bowes, and the director of benefits for Microsoft, among others.
American companies are facing enormous costs for healthcare roughly $9,552 per employee in 2009, according to a recent survey by Towers Perrin. That's up 6% over 2008 outlays and will be the fifth consecutive year of single digit percentage increases (prior to that there were five consecutive years of double-digit percentage increases.) (See the five truths about health care in America.)
Companies are scrambling to contain these costs, and the business leaders in attendance Tuesday were each recognized for innovation in this area, with an emphasis on employee wellness and prevention. Microsoft, for example, has doctors make house calls as a way to cut down on emergency room visits. Johnson & Johnson reportedly saved around $15 million on its healthcare outlays in 2007 thanks to aggressive health initiatives, including putting treadmills in offices. (See Barack Obama on Health Care.)
Despite progress at some individual companies, most employers are straining under the weight of an ever-increasing healthcare burden, just as Washington is straining to pay for its healthcare programs. As President Obama said today: "The explosion in health care costs has put our federal budget on a disastrous path. This is largely due to what we're spending on Medicare and Medicaid." Not coincidentally, a new report was released on Tuesday forecasting a dire outlook for Medicare. The report forecast that, based on current trends, Medicare would run out of funds by 2017. Just one year ago, a similar report said Medicare's hospital insurance trust fund would not run short of funds until 2019. (Read "Making Health-Care Reform Pay for Itself.")
While wellness is an admirable goal, the more likely path for both industry and government both under siege is tighter allocation of healthcare benefits. In the Towers Perrin survey, for example, many companies report that they are taking steps to tighten provisions on their prescription drug plans, increase employee cost sharing, and tighten or increase enforcement of dependent-eligibility provisions. Employee wellness is on the program too, but it's part of a comprehensive effort that includes some not-so-gentle tweaks to the system.
Similarly, Washington is smart to pursue the nearly free lunch that wellness and prevention can provide, but that leaves a lot of medical expense still on the table. For real cost containment to occur there will likely need to be difficult choices made in areas such as end-of-life care, which currently consumes an outsize share of Medicare's budget. It's not politically palatable, but as companies are discovering, healthcare-cost containment is not a job that wins friends.