Tag Archives: health care spending

Five Principles For Cracking Health Costs, Dave Ramsey-Style

Dave Ramsey is a Tennessee-based Christian author and talk-radio host, who advises on personal finance. As Jewish Northeasterners, my husband and I aren’t exactly his target demographic, but we have remained devoted fans for over eight years. Ramsey takes a common sense approach to managing money, as he puts it “we give you the same financial advice your grandmother would, only we keep our teeth in.”

It’s time we applied such common sense to healthcare spending, and a much-discussed new book does just that: Cracking Health Costs: How to Cut Your Company’s Costs and Provide Employees Better Care, by Tom Emerick and Al Lewis. This book should be required reading for every CEO and HR executive in the country.  I’ve gleaned the following five commonsense principles from the book and from Ramsey’s radio show.

1. Give Every Dollar A Job

Ramsey says every household should have a budget and know where your money is going. Cracking Health Costs says that companies should get and count results for every dollar they invest in healthcare. The book gives a checklist of some of the numbers that employers should ask their vendors to report on, such as: inpatient days fallen, imaging tests reduced, wellness-sensitive medical events declined. You should know what your pharmacy benefit manager makes in profit and what discounts you get.

That sounds simple enough, but far too often vendors obscure their results with fancy reports showing all kinds of supposed savings, even when the math doesn’t add up. The reports often leave employers scratching their heads, wondering why despite all this elaborate “savings” they are still spending more money than they did last year. Don’t put up with that, says Emerick and Lewis. The book has some great advice on spotting phony numbers and asking the right questions.

2. Cut Your Spending

Ramsey says you should get fired up to attack wasted spending and reach your financial goals. Your family will be better off if you direct your dollars toward your priorities.

Emerick and Lewis also say you should attack waste and spend less – and your employees will be better off if you do it right.

Believe it or not, this is unusual advice. Most advice to business leaders worried about health costs focuses on creative ways to spend more money. Vendor PowerPoints are filled with new ideas for employer spendfests aimed at reducing costs: new prevention programs, expanded primary care, bonuses for performance, etc.

Cracking Health Costs points out the largest item on most company’s healthcare expense reports and suggests you start cutting spending there: hospital costs. The authors detail two approaches.  First, give your employees and dependents the opportunity to travel to preferred hospitals for your highest-risk, highest-cost procedures. Author Emerick helped some Fortune 100 companies pursue this strategy with good result, identifying “company-sponsored centers of excellence” with a propensity for correct diagnosis, appropriate care plans and top quality care.

Second, demand safety and quality from all the hospitals in your network, and make that available to your employees. Of course, I was pleased to read the book’s suggestion that purchasers use my purchaser-driven nonprofit, Leapfrog, as the (free) source of information on hospital quality and safety, including an app and search engine grading hospitals.  But employers can also work with Leapfrog and business coalitions to apply pressure on hospitals to improve. Emerick and Lewis point to Leapfrog’s calculator of the hidden surcharge Americans pay for hospital errors to get a sense of how much money is on the table for them. Here’s a warning for the faint of heart: the amount of your wasted dollars will likely have nine figures.

Don’t shy away from the Emerick/Lewis strategies for managing your hospital spend: estimates are that inappropriate treatment, misdiagnosis, errors, and poor quality care may account for as much as a third of health costs in the U.S.

3. Avoid Get-Rich-Quick Schemes

Ramsey warns: if it sounds too good to be true, it probably is. Do the research.

Cracking Health Costs skewers the pay-now-save-later schemes sold to employers every day.

Some of those too-good-to-be-true ideas sound both good and true — or none of us would ever fall for them. Cracking Health Costs cautions employers on a number of programs that, structured poorly, can cost employers money, save nothing and produce zero demonstrable health advantages to employees. This includes certain kinds of screening programs, triage phone lines, health coaching and health risk assessments (HRAs) with incentives for participation.

Many of the very same vendors selling these programs know the truth about their ROI. As the authors point out, “Not one single publicly held company in the business of controlling medical care expenses actually provides financial incentives for their own commercially insured members to complete HRAs and talk to coaches.”

4. Be Generous and Giving

Ramsey advises people to set aside money for charity – even on a tight budget.

Cracking Health Costs proposes that companies focus on proving to their employees that they care about them — through generosity and actions that demonstrate concern.

There’s research behind this. The authors point to the Gallup-Healthways Well-Being Index and studies suggesting that companies that improve performance on the index can correlate with improved company performance. Healthways is a leader in this emerging field. And it appears from the research that a caring employer can significantly impact employee well-being.

Indeed, Ramsey too recommends a similar business strategy. He’s as hard-nosed a businessman as you get, but his book EntreLeadership attributes his company’s success to a culture of generosity and caring.

Ironically, poorly-executed wellness programs can undermine employee well-being. In part because of new provisions in Obamacare, today many employers are requiring that employees pay extra for their healthcare premiums if they refuse to participate in wellness programs.  Like it or not this sends a nefarious message from employer to employee: you, dear employee, are a depreciating asset, a drain to the bottom line, too stupid to know how to take care of yourself so we have to pay you to do it. This, of course, contradicts the message known to promote employee well-being, that your employer cares about you and values your service.

Penn State is learning this the hard way. They invested in an employee wellness program and withheld dollars from those who refuse to participate, no doubt hoping to show employees how deeply they care about their health. That’s not the message employees heard: they see it as Exhibit A of the pernicious motives of their employer—and this is an employer that really doesn’t need bad publicity right now.

Indeed, talented employees don’t depreciate over time, their contributions to the company improve as they accumulate experience. Talent is a precious asset to companies, the key to competitive advantage and essential to success—it should never be squandered to save a few (phantom) bucks on future healthcare premiums.

5. Your Best Financial Hope — And Your Greatest Financial Obstacle – Is In The Mirror 

Let’s face it, most of us at least once failed to stick to a budget or blew money on a dubious idea. How do we overcome our human tendency to defy common sense? Ramsey’s advice: Get fed up with yourself.  Get mad.  Passion is the key to change.

Similarly, Cracking Health Costs urges benefits executives to get mad. You are being taken to the cleaners. And worse, your employees may be suffering harm as a result. To succeed, benefits executives must not delegate their leadership to the usual bevy of vendors and health plans any more than you let your credit cards and bank supervise your personal finances. Executives that seize control of their health spending – and apply common sense – will honor their employees and thus help their companies succeed.

How Much Does Health Care Cost? More Than You Can – or Want – to Imagine

In my mind’s eye, I’ve started imagining U.S. health care spending as the Blob from the 1950s horror movie of the same name: the monstrous mass at the edge of town, consuming everything in its path. It’s expanding before our eyes, oozing all over the economy, threatening our future, and no one knows exactly how to stop it.

The other reason the Blob is a good analogy is that we no longer find it scary when there are many more modern, realistic threats (aliens, viruses, nuclear and chemical weapons) that worry us. The citizens in the movie weren’t frightened either, until it started eating them. So, after having a laugh and dismissing the Blob as a harmless story, imagine some ominous music in the background and a green, sticky substance oozing under your front door.

The Blob of health care spending continues to grow whether we acknowledge it or not. Despite recent news that our cost trend has slowed somewhat in recent years1 2 and hopes that reform will decrease costs (it won’t; early projections from the exchanges are 25% higher)3, health care spending remains one of the greatest threats to our national security and prosperity.

Unfortunately, there is neither political will nor industry incentive to limit the monster’s appetite. It is up to each of us to stop feeding its seemingly unlimited ability to consume budgets. First, let’s remind ourselves how big this monster has become and examine what we give up as a result.

How Big Is It?
The answer is that health care spending is now bigger than we can comprehend. Literally. The number is three trillion dollars per year4. That’s not a number most of us can grasp. One trillion equals one thousand billion. The idea that we are spending many times that number needs examples to understand.

Try this: if you spent $1 million dollars every single day, it would take you over 8,200 years to spend three trillion. Or, if you and 82 friends each spent $1M per day, it would take you collectively 100 years to spend $3 trillion.

Or try this: 3 trillion seconds won’t tick by for over 950 CENTURIES (95,000 years)!

Or: If we blink once every five seconds, it still would take 6,000 people living to 100 years of age to blink 3 trillion times.

More to the point, $3 trillion is almost $10,000 every year for every man, woman and child in the country.

Perhaps the most daunting part is that we spend that much each and every year, and the annual amount has quadrupled since 19905. Plus, health care now supplies one in nine jobs6. That means eight people do everything else, in every other job, in every other industry, for every one job in health care. The ratio is 8:1. Where will the ratio stop? 7:1? 6:1? Or will the Blob keep growing?

Compared To What?
From another perspective, let’s compare our health care spending with that of other countries. We spend 1.5 to 2 times as much of our Gross Domestic Product (GDP) (almost 18%) on health care than other industrialized nations, which average under 10%7. This means the Blob consumes one in every five dollars we spend on everything; a ratio of 4:1, four on everything else, one on health care. Other countries average 9:1. This means other nations can spend more on important investments, while we feed the monster. Even if we achieve a strong future economy, that disadvantage will be difficult to overcome.

Let’s also compare to spending on other national interests. Public medical spending now exceeds our budget for Social Security or Defense8, despite the amazing fact that the U.S. spends more on defense than the next ten highest-spending countries combined9.

Reading, Writing Or Ritalin®?
Most disturbing, the amount our government spends on health care has increased eleven times faster than education spending over the last 50 years, and we now spend 33% more on health care than education (8.2% of GDP versus 6%)10. This hasn’t been a conscious choice to put arrhythmia ahead of arithmetic, but that’s how the Blob works … a slow advance, gobbling up resources. The trade-off may feed the hungry monster today, but at what cost to our global competitiveness in a future labor market? Remember this represents only public spending on health care, ignoring the 40% paid privately.

Entitlements and Interest Are Crowding Out Other Spending

Total Government Healthcare Spending Increases Are Staggering

Each Of Us Feeds The Health Care Blob
Neither government nor medicine will save us from the extreme financial threat of health care. We have to do it ourselves.

Of course medicine (the so-called Medical-Industrial Complex that IS the Blob) will keep telling the public that they need more and better care; another surgery, another medicine, another exam will make us feel better. And of course that message makes us feel cared for and justified in our continued over-use of over-priced services. While someone else pays, we shrug and get another test, just to be on the safe side.

But the battle against the Blob can’t be won by asking the Blob itself to go on a diet, or asking legislators who are sponsored by the Blob to limit its consumption. And, like in the movie, the public doesn’t perceive the magnitude of the threat; until it may be too late.

What will it take to tame the monster? Each of us asking questions, pushing back on the system, objecting to outrageous pricing, and taking care of ourselves. Do your part: feed the Blob a little less this month.

This article was first posted on Altarum.org.


1 Ryu AJ, Gibson TB, McKellar MR, Chernew ME. The slowdown in health care spending in 2009-11 reflected factors other than the weak economy and thus may persist. Health Aff (Millwood). 2013;32(5):835-40. Epub 2013/05/08.

2 Cutler DM, Sahni NR. If slow rate of health care spending growth persists, projections may be off by $770 billion. Health Aff (Millwood). 2013;32(5):841-50. Epub 2013/05/08.

3 Hancock J. Maryland Offers Glimpse At Obamacare Insurance Math. Kaiser Health News [Internet]. 2013 May 20, 2013.

4 Munro D. U.S. Healthcare hits $3 trillion. Forbes [Internet]. 2012 May 20, 2013.

5 Hartman M, Martin AB, Benson J, Catlin A. National health spending in 2011: Overall growth remains low, but some payers and services show signs of acceleration. Health Aff (Millwood). 2013;32(1):87-99. Epub 2013/01/09.

6 Altarum Institute. Health Sector Economic Indicator Briefs 2013 May 20, 2013.

7 PBS NewsHour. Health costs: How the U.S. compares with other countries. October 22, 2012.

8 Meeker M. A Basic Summary of America's Financial Statements, February 2011. May 20, 2013.

9 Cory Booker says U.S. military spending is greater than the next 10-12 countries combined. The New Jersey Star-Ledger PolitiFact [Internet]. 2013 May 21, 2013.

10 Meeker M. A Basic Summary of America's Financial Statements, February 2011. May 20, 2013.