Tag Archives: disease management

Disease Management: Savings at Pepsi

The second-most read article from Health Affairs in 2014 was a fantastic piece by the employee benefits professionals from Pepsi and researchers from the RAND Corp.

The Pepsi team and the RAND researchers evaluated PepsiCo’s wellness program over a seven-year period and found the following:

  • The disease management component of the overall wellness program lowered healthcare costs by $136 per member per month (PMPM) and decreased hospital admissions by 29%
  • Lifestyle management/wellness showed a return on investment (ROI) of .48 to 1 (in other words, it LOST money)
  • Disease management’s ROI was 3.78 to 1
  • Combined ROI for wellness and disease management was 1.46 to 1
  • Findings were consistent with RAND’s workplace wellness programs study, which found that lifestyle management did not lower healthcare costs
  • Lifestyle management program’s cost was $144 per participant per year

The article concludes that “blanket statements like ‘wellness saves money’ are not warranted.”

As employers evaluate their healthcare strategies, it is important to keep these findings in mind.

A Quiet ACA Waiver — and Needed Change

Massachusetts has been on the forefront of American history since the days of Paul Revere and the Boston Tea Party. It is also the state that inspired the Affordable Care Act, a.k.a. Obamacare, by its groundbreaking universal coverage law implemented under former Gov. Mitt Romney. What has received very little, if any, national media coverage is that the heavily Democratic-controlled state of Massachusetts quietly filed for and was granted a three-year waiver on how premiums are calculated under the ACA for small employers.

The waiver request was so quiet that the Boston Globe reported that Gov. Deval Patrick, a friend and supporter of the president, signed the legislation on the Friday afternoon before the July 4th weekend last year “in private when the statehouse was empty and the majority of voters were on vacation.”

One of the major negative consequences of Obamacare for small employers in Massachusetts and throughout the country is that the ACA destroys the entire concept of “experience rating.” Experience rating has been the cornerstone of how workers’ compensation insurance premiums are calculated since time immemorial. In simple terms, employers’ workers’ comp premiums are based on the type of industry in which they operate, the number and type of employees they have and their historical safety record. Employers with great safety records pay less for insurance, and employers with poor safety records pay more. This approach is not only fair but gives employers a strong financial incentive to provide a safe workplace.

After enactment of the Massachusetts universal coverage law, (which I am told was only 70 pages long, compared with the ACA's 2,000-plus pages and growing) employers’ health insurance premiums were 15% above the national average and the most expensive in the nation. Now, under the ACA, Massachusetts health insurance premiums are projected to go up 50% for the majority of small employers.

The basic issue is that the Massachusetts universal coverage law used nine rating factors to calculate premiums for small employers. These include discounts for using healthcare insurance purchasing cooperatives and for providing a safe workplace. Those nine factors are now preempted under the ACA and have been replaced by only four: age, family size, location and smoking habits.

The Chamber of Commerce and other small-business groups protested the changes vehemently. Gov. Patrick said he privately asked for a waiver and was told “no” by the president and the Department of Health and Human Services. Obviously, it would be a political embarrassment to the president if the place where his healthcare reform began, and one of the “bluest” states in the nation, publicly requested a waiver. However, the state legislature overwhelmingly voted to require the governor to do so.

Massachusetts was, in fact, granted a three-year waiver on the ACA's requirements on rating factors. The request for a permanent waiver was denied last September by Secretary Kathleen Sebelius at HHS.

Of course, “progressive” healthcare reform advocates opposed the waiver, stating that it would be “unfair” to other employers. How is it unfair that employers who promote wellness and a safe workplace are rewarded for their efforts with reduced premiums?

A study by the Pioneer Institute predicts that Massachusetts employers will now have to cut back on employment and the number of insured. Tell me, how is that “progressive”?

The Massachusetts Department of Insurance has reported that a study by the state’s health insurers predict that 60% of small employers will see a 50% or greater rate increase after the waiver expires in 2016, on top of the normal yearly increases.

The president, during his State of the Union address, challenged anyone to identify changes needed to the ACA. Maybe it’s time to dump the ACA premium rating factors in the Boston harbor like the British tea and restore full-blown experience rating for small employers in Massachusetts and in the rest of the nation.

Wellness Programs Take a Punch to the Gut at PepsiCo

The report in the journal Health Affairs about PepsiCo marks the first time a major organization has been found to be losing money in a wellness program (not including the ones that my colleagues and I are exposing as frauds, like British Petroleum and the Nebraska state employee program).  Highlights are as follows:

  • Disease management alone was highly effective, with an ROI of almost 4-to-1;
  • Wellness alone was a money sink, with each dollar invested returning only $0.48 in savings;
  • The wellness savings were attributed to an alleged reduction in absenteeism, as reported by participants.  There was no measurable reduction in health spending because of wellness.

There are many reasons to think that this result, as unimpressive as it is, overstates the value of the program.  For instance, the report doesn’t measure the time that employees spent completing the forms and getting their blood drawn.  Nor does it include staff time or the fees to Mercer, which advised PepsiCo to launch the program. Nor does the report take into account the bias caused by participants having a more engaged mindset than non-participants, or the self-reporting of data for absences, the only slightly bright spot in the report. One suspects that the author, RAND’s Soeren Mattke, pulled some punches for political reasons, to avoid having PepsiCo suppress the entire study.

So where does this result leave the wellness industry, and by implication brokers who are earning commissions from it?

First, wellness only has one supporter left in Washington, DC, the Business Roundtable, an association of chief executives of large U.S. corporations. Its vice president was quoted in Reuters as saying Roundtable members are “as enthusiastic as they have ever been about these (workplace wellness) programs,” adopting them to boost employee morale and improve recruitment.  One irony is that the Business Roundtable’s Health Committee is chaired by a CEO in the casino industry, an industry which has steadfastly defended its right to expose its employees to more second-hand smoke than all other industries combined.   Hence, one suspects an ulterior motive for the Roundtable’s support, such as being able to control employee behavior and increase employee share of premiums.

The other irony is that employees usually resent and sometimes revolt against programs designed to “boost their morale.”

Second, no wellness program has ever saved any corporation a nickel.  The simple sleight-of-hand of comparing participants to non-participants and/or just measuring people who were high-risk to begin with while ignoring those whose risk factors increase will show savings where none exist.  Indeed, how could it be possible to improve health, let alone generate savings by improving health, by doing the opposite of what guidelines recommend, which is what wellness companies do.  For instance, the United States Preventive Services Task Force recommends screening asymptomatic people only once every five years (except for blood pressure), whereas almost all wellness vendors insist on annual screenings.  The literature is very clear that annual checkups for asymptomatic adults are expensive and counterproductive, and yet many wellness programs are measured by how many people they send to the doctor.

Third, there is more bad news on the way.  This Health Affairs article is a start, sort of like busting Badger or Skinny Pete, but there is some investigative work that will be revealed in the weeks ahead that, to continue the analogy, will be more akin to blowing up Gustavo Fring’s whole operation, exposing wellness as possibly the biggest scam ever to be played by the healthcare industry on corporate America.  (This may seem like a strong statement, but if you doubt it, simply bookmark this column for a month or two.)

Brokers and consultants would therefore be well-advised to start backing off from these programs.  The short-term commission sacrifice will more than pay for itself in long-term client retention.   Note that I said, “back off,” not “run away.”  Your clients have in many cases staked their reputations on wellness, advocating –- possibly with your help — for steadily larger budgets for programs and especially incentives.  You need to step back from the ledge together, keeping in mind the amount of political capital they’ve invested.  They relied on you to take them here.  Now they will need to rely on you to bring them back.

Editor's Note: See also our thought leader Tom Emerick's take on the PepsiCo news.