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Helping employees "get a life" by voluntarily turning around high-risk lifestyles can generate dramatic savings in employee benefits costs.

These partnership strategies are an especially good fit for corporations with high-margin products, or in stable industries, or with large populations of high-risk employees.

Hymel's concept is simple: Promoting healthy lifestyles and better self-management of chronic medical conditions will give employees richer lives, she says. Because employees with chronic conditions generate a disproportionate share of medical and disability costs, they're key to reducing an employer's costs.

In practice, this approach requires a chess player's skill for incremental program development, building data systems to analyze where cost increases are coming from, linking diverse programs into an integrated network and changing corporate culture.

In her third month on the job, Hymel launched her first project, her so-called "Health Connections" program. It includes a branded portal to the WebMD Web site exclusively for Cisco employees.

"This is going to be the cornerstone of trying to get a handle on employees taking charge of their lifestyle risks," says Hymel. "It will give employees access to a number of different support tools, coming online in a few weeks."

The Web site includes an online health risk appraisal that employees can complete in 15 minutes, for their own use. It also provides general, anonymous data to identify trends in health risks in Cisco's employee population. The site will also give employees hospital-quality evaluations and other data to help them select health plans during the open enrollment season.

In only three months, 40 percent of Cisco's U.S. employees took the risk appraisal survey on the company's branded WebMD site. That's not as many as Hymel wanted, but according to survey vendor Ingenix, the response was good for a first survey not aggressively promoted.

"We'll be using that information to launch our full health-care programs," says Hymel.

The employees working for Cisco Systems present Hymel and her lieutenants with an opportunity and a challenge: claims data show the young employee population, as expected, has a low rate of chronic conditions. That means medical costs are lower than average and may remain so in the near future. But it may also mean Hymel doesn't have the low-hanging fruit of excessive health costs that quickly yield exciting cost-reduction statistics.

Still, with health risk appraisal data in mind, Hymel says, "We're trying to uncover risk factors that we could begin to address so these risk factors don't turn into chronic diseases over time."

Younger employee populations, however, aren't automatically healthier. Hymel's previous employer, Hughes Electronics--a call center in Boise, Idaho, with more than 1,000 employees--had especially high benefits costs, for example.

Although the average age of a call-center worker there was just 28 years, 14 percent of the population had high blood pressure, 21 percent had high cholesterol, 22 percent smoked and 19 percent were obese, weighing in with a body mass index of 35 or more.

Those rates were three to five times higher than the overall average among Hughes employees in some categories. The unit also had an exceptionally high number of lost days and pervasive "presenteeism" problems due to high rates of obesity, depression and pain. In addition, those workers rated by supervisors as being in the lowest 10 percent by performance also had two or more health risks.

To help employees reduce their personal lifestyle risks, Hymel says Hughes provided health-enhancement programs, a focused employee assistance program, a migraine program, basic back education and programs for pregnant employees.

"In the first year, we were able to show a net savings after program costs of $95 per employee per year, averaged across all the employees in the unit," she says. "Overall, the entire unit also saw a decrease in short-term disability of 6 percent and a decrease in workers' compensation costs of 4.9 percent."

News Corp. bought the unit in 2003, and liked the risk-reduction approach enough to apply it in two other call centers that News Corp. bought later, Hymel says.

DATA IS KING

Pitney Bowes, the mail and document management corporation, illustrates the power of accurate data to help managers cut the cost of employee benefits. Pitney's advanced medical data system can identify sources of benefits costs while protecting privacy of individual medical information.

When most corporations were shutting down company clinics at the start of the outsourcing boom in the early 1990s, Pitney Bowes went the other way. The company's data indicated the clinics could help reign in lost-time from minor nonoccupational events as well as on-the-job stresses in their Connecticut manufacturing plants.

In-house follow-up studies validated the strategy, having documented substantial savings by the clinics, and Pitney Bowes then inserted it into its future HMO contracts.

In 2004, Pitney Bowes went a step further, enhancing its data systems by adding predictive modeling software capabilities.

"The predictive modeling results showed the health burden on our population and the costs that were driven by the lack of drug-taking compliance," says Assistant Medical Director Brent Pawlecki. "It also showed we had a population in which about 50 percent had some form of a chronic condition, in Connecticut manufacturing operations."

While other employers used restrictive tiered pharmacy systems to corral employees into buying generics and drugs approved by the health plan, Pitney Bowes instead liberalized its tiers for employees with diabetes and asthma.

The new system made more effective drugs affordable for employees, who improved their treatment regimens and drug-taking compliance, says Pawlecki.

In the program's first year, total medical costs for treating diabetes came down by 6 percent, for treating asthma by 15 percent. Even overall costs for pharmaceuticals came down.

Although the company paid more for daily medications, employees had fewer emergency-room visits requiring the most costly drugs used in a medical crisis, Pawlecki notes.

ACCOUNT-BASED BENEFITS

Some employers, like defense contractor Lockheed Martin, are phasing out traditional defined-benefit pensions altogether by enrolling new employees in more predictable defined-contribution pensions. These pensions create individual accounts owned by employees. Some accounts are portable from job to job.

The change has been coming slowly but inexorably, with many corporations offering both traditional defined-benefit and defined-contribution pensions for several years.

More employers are now freezing their traditional pensions and defined-benefit plans, and offering only account-based plans in the future. In January 2006, IBM announced it, too, will move that way, with the transition expected to be complete in 2008.

In addition to IBM and Lockheed, other major corporations making the move last year were Hewlett-Packard Co., Motorola Inc., Sears Holdings Corp. and Verizon Inc. All are replacing defined-benefit pensions with enriched 401(k) plans. More employers may follow as new laws governing defined-benefit pensions go into effect, requiring catch-up payments to reach higher funding levels, and with less flexibility in accounting.

Consumer-driven health plans are built on a similar account concept. CDH plans have high deductibles, and many use a tax-advantaged health savings account for employees that can gradually build value to help cover retirement-age medical costs. These plans, too, are portable.

"Many employer groups are looking for ways to break the historic link between employment and health benefits, because employers have little ability to protect themselves against inflation in medical cost," says Ed Lenz, general counsel for the American Staffing Association. "A combination of incentives and tax breaks could make it feasible for more individuals to have their own benefits and take them with them from job to job."

If "getting a life" means more personal control over the factors affecting health--including benefits--then account-based pensions and health plans fit with the concept.

"Mack the Knife" crisis strategies generate the headlines during bankruptcies, emergencies and collective bargaining. But stable corporations look to "Get a Life" partnerships with employees to reduce risk and generate sustainable performance.

PETER MEAD is a writer living in Oregon who writes regularly about benefits issues.

March 1, 2006

Copyright 2006© LRP Publications