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.