Companies Form New Alliance to Target Health-Care Costs
Verizon is one of 20 major companies that are banding together in a bid to hold down the cost of providing workers with health-care benefits. Photo: Laura Rauch/European Pressphoto Agency
Companies Form New Alliance to Target Health-Care Costs
Twenty major employers band together in bid to hold down the cost of providing workers with benefits
By Louise Radnofsky
Wall Street Journal
WASHINGTON—Twenty major companies—including American Express Co.
, Macy’s Inc.
and Verizon Communications Inc.
—are banding together to use their collective data and market power
in a bid to hold down the cost of providing workers with health-care
benefits.
The newly formed alliance of companies, which cover
about four million people among them, plan to share information about
members’ employee health spending and outcomes, with an eye toward using
findings to change how they contract for care. Ultimately, some members
say, they could even form a purchasing cooperative to negotiate for
lower prices, or try to change their relationships with insurance
administrators and drug-benefit managers.
The move, given the
size of the companies involved, could ripple through the world of
employer-provided health coverage, which has long been the way most
Americans—about 170 million—get their health coverage. Participants said
they hoped others ultimately could join in their effort. Big employers
typically self-fund their workers’ medical treatment, through plans
administered by traditional insurance companies that collect employee
contributions in the form of premiums and deductibles.
That
leaves them directly exposed to the rising costs of care and
prescription drugs, in particular. But to date, companies largely have
focused on trying to change the way workers’ plans and contributions are
structured.
An insurance industry official suggested insurers
could support an initiative like the alliance, noting that insurers,
too, want to have greater transparency about health costs and treatment
outcomes.
Companies signing on to the alliance say they are committed to
continuing to provide health benefits, but they must shake up the way
they do it more dramatically than anyone has tried to do so far.
“Health care is one of the things that employees need and want,” said Marc Reed,
chief administrative officer of Verizon. “What we’re trying to do is to
make this sustainable so that kind of coverage can continue.”
Participating
companies have agreed to buy into what they are calling the Health
Transformation Alliance and aggregate their data about provider costs
and patient outcomes starting as soon as this year. A pilot project
specifically aimed at curbing prescription medication costs also is in
the works for 2017, the alliance is expected to announce.
Executives at some of the companies that have played a key role in
recruiting others note that it is too soon to say for sure what they
will identify as areas for savings.
“I’ve got my suspicions as an individual company,” said Kim Hauer,
chief human resources officer at Caterpillar Inc. “It would somewhat be
speculation on my part” to draw firmer conclusions, she said, but noted
that the alliance’s plans to pay particular attention to the
health-care supply chain showed that “clearly we think there could be
some opportunity there.”
Several people interviewed said they
hoped getting data for a large number of people that encompassed
health-care networks nationwide could reveal which treatments and health
providers had better outcomes in treating certain illnesses. That would
allow them to steer workers to specific providers considered to reflect
good value for money, through recommendations or formal incentives.
“The
fact is that when you start looking at this on a larger basis, now
you’ve got four million lives, you can see where people are going for
health care, you can see the outcomes,” said Mr. Reed of Verizon.
Ultimately,
he added, the alliance “could end up morphing into some kind of
cooperative where we could use our aggregate scale to purchase these
types of services on behalf of our employees.”
Bill Allen,
chief human resources officer at Macy’s, said it was possible the
companies also would take a hard look at the health industry’s
middlemen, such as pharmacy-benefit managers and the third-party
administrators that act as the front line operators of corporate health
insurance when the companies themselves meet the cost of claims.
“It’s certainly an area that we’re interested in and we’ve got to really understand where the data brings us,” he said.
The
2010 health-care overhaul made relatively small changes to
employer-sponsored insurance. Some companies whose workers have variable
shifts cut back on their hours to limit their exposure to new
requirements that they offer benefits to most employees or pay a
penalty, but there haven’t been signs that employers are widely dropping
full-time workers’ benefits to take advantage of the health law’s new
offerings.
The law—and Obama administration more generally—has
been trying to shift the Medicare federal insurance program for the
elderly toward payment based on patient outcomes.
The new
employer initiative was conceived by the American Health Policy
Institute, a think tank headed by Tevi Troy, a top health official in
the George W. Bush
administration. Several of the companies that have been first to join
the alliance also had worked with that think tank in the past.
Some big employers, such as Sears Holdings Corp.
and Darden Restaurants Inc.,
which owns the Olive Garden, have experimented with creating
private exchanges—online marketplaces where an employer’s workers can
shop for different types of health plans, usually with a fixed
contribution from the employer.
Some members of the alliance have taken a dim view of such approaches, arguing that they have shown modest savings at best.
“Employers
are not seeking a better private exchange; they are seeking an
affordable system dedicated to promoting and sustaining health,”
concluded Mr. Allen and Kevin Cox, the chief human resources officer at American Express, in a “call to action” they circulated among potential alliance members.
Mr.
Cox said the idea emerged from a meeting during “a dark and stormy
weekend” on the eastern shore of Maryland. Several executives gathered
there for a discussion agreed they “don’t really understand the supply
chain, nobody is going to solve this for us, and no single company can
really make a sustainable difference in the health-care supply chain.”
“I think we’re targeting the whole supply chain” now, Mr. Cox said.
Write to Louise Radnofsky at louise.radnofsky@wsj.com
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