How Effective Workplace Health Programs Reduce Health Care Costs

The health and chronic disease prevention centers of America are now America’s worksites. There’s not a single group in America that does more to promote health and improve the health behaviors of our population than worksites. Our current medical system is a disease treatment system.  It was created to treat, not prevent, arrest, or reverse health conditions. If you do have disease or existing health problems, the American system of medical care is very good, albeit extremely expensive.

The main reason worksites are in the workplace health business is to improve employee health and prevent employees from having to use our expensive medical system. Employee wellness programs can impact employee health, but their direct impact on the high cost of health care is limited because many of the drivers of high healthcare costs are not impacted by wellness programs. Let me show you why this is so.

We have good research that shows us what the main drivers of healthcare costs are.

Drivers of High Healthcare Costs

Unhealthy lifestyle behaviors are responsible for most chronic diseases.  These diseases cause approximately 70 percent of all deaths and up to 75% of all healthcare costs. Lack of physical activity, poor diets and tobacco use are directly responsible for 70-90% of chronic diseases.

Salary and drug costs in the U.S. are the highest in the world. Physicians, nurses, and other healthcare providers make higher salaries than comparable professionals in other industrialized countries. In one company I consult with, the cost of medications has increased 27% in the past 12 months. Examples of soaring prices have been reported on multiple media outlets. Pharmaceuticals are the new gold rush.

Expensive technologies and procedures such as MRI and CT scanning are medical marvels that come at a steep price. Fearing possible litigation, physicians will practice defensive medicine and order these scans when they are often unwarranted. This is one reason Americans do twice as much imaging as other populations in the industrialized world.

Fragmented care refers to the uncoordinated and disconnected care provided by many healthcare facilities. Multiple doctors from different facilities, incompatible records systems, multiple surgeries and duplicate lab tests are common features of our healthcare system. These factors contribute to the duplication of procedures and tests.

Lack of cost consideration really refers to lack of cost transparency. Unlike free market transactions where a buyer and a seller agree over a known price, most medical patients have no idea how much things cost.  By having insurance, many people never see the price of goods and services and do not base their decision to purchase based on price.  Price is decided between the healthcare provider and the insurance company which makes it easier to increase prices.

Fee for service refers to the idea that doctors only get paid when they provide a service—put something in you or take something out of you. Financial incentives are based on quantity of services provided, not quality. Hence, most physicians have direct financial pressure to provide a service whether or not it is needed.

High administrative costs exceed $1,100 per person per year.  Excluding the actual cost of providing health care, it costs $1,100 per person just to administer health care in the U.S.

End-of-life care is the most expensive of all medical care.  One out of every four Medicare dollars is spent on end of life care.  In 2012, that was $125 billion.

Provider consolidation means hospitals and physician groups are banding together with the goal of increasing market share. With each consolidation comes the tendency to increase the cost of services because of reduced competition.

Health care cost drivers 1

This list of cost drivers is not comprehensive but it does include the most important ones.  Worksites may not see or understand how healthcare costs are impacted by these drivers, but they do understand that there are strategies that can be implemented to try and slow cost increases.  Some of these are more effective than others, depending on the worksite.

workplace wellness programs reduce health care costs

Healthcare Cost Reduction Strategies

Drop insurance completely by forcing employees to seek healthcare coverage in the exchanges.  Larger employers can pay the federal penalty each year and pass the remaining cost of health care directly to the employee.  This is another version of healthcare cost shifting that many companies have considered.  This is exactly what Walmart did with it’s 30,000 part time employees. Others are doing the same.  If dropping insurance coverage is too bold, you can do what most employers do, pass the cost increase along to your employees.

Change insurance carriers/ negotiate better rates in an attempt to get better pricing. Most carriers will negotiate hard to get your business.  It may be possible to shave a few percentage points off the cost during year one, but soon after the honeymoon is over, cost increases continue.  This strategy is usually a dead end.

Self insuring  means employers pay for employee healthcare costs directly.  With this approach the risk of high healthcare costs is born by the employer.  Stop loss policies help protect agains catastrophic costs. Once thought to be a strategy of large corporations, there are insurance companies that will self-insure a company with as few as 50 people.  This can help reduce approximately 7% of the cost that is associated with administering a fully insured insurance plan.

High deductible plans are more popular than ever. They are the ultimate in cost shifting.  Some studies have shown that when your employees begin a high deductible healthcare plan, healthcare costs can be reduced by as much as 5-14%.

On-site clinics are loved by employees and they may well have a big impact on employee productivity, but it is still unclear if they can actually reduce healthcare costs.

Disease management includes strategies to manage the chronic conditions of high-risk, high-cost employees. The research says disease management can improve patient care and may improve health outcomes, but fails to save money.

Workplace health programs are one of the most effective and well accepted cost reduction strategies. The government and universities have demonstrated that effective workplace health programs don’t eliminate the drivers of healthcare costs, but they do reduce the demand for healthcare services.  Said another way, workplace health programs help worksites avoid high health care costs because they help employees stay healthy and stay out of the healthcare system.

worksite wellness unhealthy behaviors

Workplace health programs will not impact all the drives of healthcare costs, but they can impact unhealthy behaviors and this is how wellness programs save money.  By helping employees adopt and maintain healthy behaviors, they improve their health and avoid chronic diseases.  Without chronic disease the cost of health care is greatly reduced.

So What?

This last image shows how an effective employee health program can have a direct impact on at least one of the divers of healthcare costs: unhealthy behaviors.  Good wellness programs keep people out of the healthcare system. When you are not in the healthcare system, the drivers of healthcare costs are muted.  Reduced health care costs is just one way how wellness programs save money.



About The Author

Dr. Steve Aldana

Dr. Aldana is the CEO of Wellsteps, a worksite wellness solution that leads the nation in wellness program deployment and engagement. Dr. Aldana authored over 75 scientific papers and 7 books on health risk management, healthy living, and health promotion programs. He has given over 350 keynote speeches across the U.S. on the ability of good nutrition and regular exercise to prevent, arrest, and reverse many chronic diseases. Email him at: