ETC Physical Therapy

Health Care Costs

Escalating health care costs in the US continue to remain an issue of great concern for many employers and providers of health care services. Here are some of the latest statistics concerning health care in the United States.

Health Care Expenditures

·         The United States spends more on health care than any other industrialized nation in the world and yet, in many respects, its citizens are not the healthiest. (2)

·         The US healthcare system is the most expensive of systems, outstripping by over half again the health care expenditures of any other country. (2)

·         In 1997, health care costs in the US totaled in excess of $1 trillion. (2)

·         Health care costs in the United States exceed 14% of the gross domestic product. (2)

·         The average cost of health care per person in the United States approximated $3,925 in 1997. (3)

·         Lifetime medical costs average approximately $225,000 per person. (1)

·         Some 18 percent of lifetime costs for medical care--over $40,000--is estimated to be incurred in the last year of life. (1)

·         Despite expenditures in excess of $1 trillion, the number of people without health insurance continues to increase reaching 43.4 million--16.1% of our population--in 1997. (2)

·         The Health Care Financing Administration's analysts recently projected that, beginning in 1998, national health spending would again begin to grow faster than the rest of the economy. (2)

·         By 2002, the HCFA projected that national health expenditures would total $2.1 trillion--an estimated 16.6 percent of the gross domestic product. (2)

·         Preventable illness makes up approximately 70 percent of the burden of illness and the associated costs. (1)

·         Preventable illnesses account for eight of the nine leading categories of death--980,000 deaths per year. (1)

Health Care Expenditures and US Employers

·         Collectively, private employers and employees are the most important purchasers of health care through the insurance premiums they pay together for coverage. (3)

·         Of the $585 billion that private payers expended for medical services in 1997, about 60% (348 billion) was spent by employers and employees to purchase insurance. (3)

·         Between 1980 and 1993, spending by employers on health care as a percentage of total compensation to workers increased 3.7 percent to 6.6 percent. (3)

References

1. Fries, J.; Koop, C.E.; Beadle, C.E.; et al. "Reducing health care costs by reducing the need and demand for medical services."  The New England Journal of Medicine, 329: 321-325 (July 29), 1993.   2. Iglehart, J.K. "The American health care system--expenditures." The New England Journal of Medicine, 340(1): (January 7), 1999.  3. Kuttner, R. "The American health care system--employer sponsored health coverage. The New England Journal of Medicine, 340(3): (January 21), 1999.

Reasons for Wellness
Six important reasons from the Wellness Councils of America why every business should consider developing and implementing a health promotion initiative.

Reason # 1: Health Care Costs

Let's start with the obvious. The first reason why the concept of health promotion is important to an organization is because health care costs continue to be an issue of major concern. 

As you know, we spend over $1 trillion dollars in this country alone on health care, far more than any other nation in the world. What's more, the average annual health care cost per person in the United States far exceeds $3,000 - lifetime costs per person are somewhere in the neighborhood of $225,000.

Sadly, despite these enormous expenditures, it is estimated that as many as 41 million Americans are without health care insurance. However, because much of these costs are linked to health habits, it is possible for employers to take aggressive action toward reducing health care utilization and containing costs by taking on a health promotion program.

Reason # 2: Most Illnesses Can Be Avoided

The second reason why the concept of health promotion is important to businesses is that the leading causes of illness are largely preventable. Believe it or not, experts suggest preventable illnesses make up approximately 70% of the entire burden of illness and associated costs in the United States. Behind these illnesses are a whole host of preventable factors including such things as tobacco use, high-risk alcohol consumption, sedentary lifestyles, and poor nutritional habits.

Are you beginning to see the big picture here? By leveraging a health promotion initiative, employers can take important steps toward preventing unnecessary sickness and death. This is why so many business people are attracted to the idea of developing a health promotion program.

Clearly, it makes a lot of sense. After all, if you can reduce the burden of illness among your workforce by preventing the major causes of sickness, more of your employees will remain healthy and productive. What's more, you may even save some money in the process.

Reason # 3: The Work Week is Expanding

The third reason why the concept of health promotion is important to businesses is the reality that the workweek is expanding.

According to Harvard economics professor Juliet Schor, people are working harder than they ever have before. Believe it or not, the typical American now works 47 hours a week - 164 more hours than only 20 years ago. And, if this present trend continues, Schor contends that average person would be on the job 60 hours a week - for an annual total of 3,000 hours a year.

Driven in large part by newly developed technology, modern conveniences like modems, laptops, personal pagers, faxes, cellular phones, voice and e-mail, have all but erased the traditional and sacred boundaries of work.

Without question, an ever-growing workweek poses a number of threats to the health and well-being of your employees. However, as a number of progressive employers have demonstrated, health promotion programs can help to alleviate some of these concerns.

Reason # 4: The Technology Revolution is On

The fourth reason why the concept of health promotion is important to businesses relates to the fact that we are currently knee-deep in a revolution of technology. In fact, since 1983, American businesses have added some 25 million new computers to the nation's business operations.

To be sure, our increased reliance on technology has ushered in a whole host of new health concerns including things like repetitive stress injuries, low back problems, and compromised vision. Moreover, because almost one-third of the workforce now spends the lion's share of their day seated at their desks plugged into workstations, sedentary lifestyles have become a concern of epic proportion.

Left unaddressed, these issues can have a serious impact in terms of the health of your employees and your company checkbook. While not a panacea, a well-designed health promotion initiative can also help to address some of these concerns.

Reason # 5: Employee' Stress Levels are Increasing

Not only are we living in a high tech era, we are also living in the midst of an information explosion. In fact, according to management guru, Dr. Price Pritchett, there has been more information produced in the last 30 years than during the previous 5,000. And, if that's not enough, experts estimate that the information supply available to us is doubling at the rate of every five years.

In addition to the challenge of information management, is the cold, harsh reality that the life span of our expensive computer hardware is now measured in days. Let's not sugarcoat it. Trying to harness technology within a business environment is both challenging and frustrating.

Inherent in the whole process is an increased level of stress for both you and your employees. In fact, in a recent nationwide poll, 78% of Americans describe their jobs as stressful. Moreover, the vast majority indicated that their stress levels have worsened over the past ten years.

One thing's for certain, if left unchecked, high levels of organizational stress will exact a very real toll on your business. From increased accidents, to reduced productivity, to unnecessary absenteeism, to increased medical care costs, stress is insidious in its nature and devastating in its impact.

Increasingly, more and more business leaders and health promotion practitioners are looking to health promotion programs as a means of reducing, managing, and in some instances, even eliminating harmful stressors. By implementing a comprehensive stress management intervention, it is possible for leaders of businesses to successfully combat prevalent stressors in the workplace.

For example, teaching your employees stress management skills, implementing flexible work schedules, increasing the quality and quantity of social interaction, and increasing participation in the company decision-making process can all have a significant impact.

Reason # 6: Increasing Diversity in the Workforce

Perhaps one of the most exciting developments in the business environment is the increasing diversity of the workforce. However, with increasing diversity comes the need to address a variety of health and wellness issues in order to keep one's employees healthy and productive.

For example, jobs generated by small firms are more likely to be filled by younger workers, older workers, and women. In fact, according to recent statistics obtained from the Small Business Administration, the number of women-owned firms and the firms owned by people of color has increased significantly. In fact, between 1987 and 1992, the number of women-owned businesses rose approximately 43%. Moreover, in 1996, nearly eight million women-owned firms provided jobs for 18.5 million persons -- more people than are employed in the Fortune 500 industrial firms!

Recent data on black-owned businesses revealed an increase of 46%. Hispanic-owned businesses proved to be one of the fastest growing segments, increasing 82.7% between 1987 and 1992. Finally, businesses owned by Asian-Americans, American Indians, Alaskan Natives and Pacific Islanders increased 87.2% between 1987 and 1992.

Again, with increasing diversity comes the challenge of being responsive to a variety of additional health concerns. Because health promotion programs help to pinpoint the specific health issues of most concern, such initiatives can be used to seamlessly identify and address a variety of diverse health issues.

The Bottom Line on Worksite Wellness

While the previously mentioned list was by no means meant to be a comprehensive one, you'd have to agree that these are some pretty compelling reasons why every organization should give serious consideration to developing a worksite health promotion initiative.

Workplace Benefits
It's no longer a matter of speculation. Consistent with the newly emerging worksite wellness literature, there are a number of tangible benefits associated with worksite wellness programs.

Benefit #1: Improved Morale
As the organizational culture begins to change as a result of your health promotion efforts, you and your employees may actually begin to see and feel a new level of energy within the organization. Ultimately, one of the most ambitious goals of any comprehensive health promotion program is to attempt to influence the attitudes and actions of the organization's most valuable resource -- its employees.

Benefit #2: Reduced Turnover
As we all know, employee replacement costs can be quite high for any kind of business. The effort and expense associated with running employment ads, reading applications, checking references, interviewing qualified candidates and hiring, and training a new employee can be a serious burden on any business. In light of the challenges that high employee turnover poses, many businesses are looking to health promotion programs as an additional perk that can help to prevent employees from jumping ship.

Benefit #3: Increased Recruitment Potential
In the midst of a very tight labor market, businesses are forced to pull out the stops in order to recruit new talent. In some instances, health promotion can prove to be a very valuable tool in sealing the deal.

Benefit #4: Reduced Absenteeism
When an employee misses work in a business setting, the entire organization is forced to absorb their responsibilities. Even in the event of the occasional absence caused by things like colds and the flu, work can back-up and tensions can build.

Even worse is a long-term absence caused by a major health event that requires hospitalization and/or rehabilitation. By preventing certain types of illness caused by poor lifestyle habits, health promotion programs can play an important role in reducing absenteeism.

Benefit #5: Health Care Cost Containment
Most businesses don't start a health promotion program with cost containment in mind. However, cost containment for certain health problems should be considered a viable goal by many businesses.

Benefit #6: Improved Employee Health Status
One of the greatest advantages of a well-designed health promotion initiative is the promise of improved health. While not conclusive, there is a growing body of evidence that suggests that well-designed health promotion initiatives can successfully impact such behaviors as smoking, high-risk alcohol use, exercise, nutritional habits, seatbelt usage, and stress.

Bottom Line

Corporate wellness makes a bottom-line difference. Today, more than 81% of America's businesses with 50 or more employees have some form of health promotion program the most popular being exercise, stop-smoking classes, back care programs, and stress management. Most employers offer wellness programs simply because they think the benefit is worth the cost. Yet business leaders continue to ask themselves how to control huge annual increases in health insurance premiums and health care costs.

For many companies, medical costs can consume half of corporate profits or more. Some employers look to cost sharing, cost shifting, managed care plans, risk rating, and cash-based rebates or incentives. But these methods merely shift costs. Only worksite health promotion stands out as the long-term answer for keeping employees well in the first place.

Worksite wellness is health care reform that works. Results from America's finest companies, summarized here, are reason enough to think about an investment in your most important asset--your employees and the impact this investment can have on your bottom line. 

*                     Providence Everett Medical Center, a member of the Wellness Councils of America, in Everett, Washington, saved an estimated 3 million or a cost-benefit ratio of 1 to 3.8 over 9 years of an outcomes-based employee health benefit program called the Wellness Challenge®. By offering financial incentives ($250 - $325) to employees who meet specific organizational and employee health initiatives the program continues to meet cost containment expectations in the area of healthcare use, sick time, injuries, while improving health habits and self-care practices. During the first 4 years of the program there was a 28% average reduction in healthcare utilization compared to nine other Providence hospitals that were used as a control group.

·       *                        Du Pont saw that each dollar invested in workplace health promotion yielded $1.42 over two years in lower absenteeism costs at Du Pont Co. (Well Workplace Gold in Delaware). Absences from illness unrelated to the job among 45,000 blue-collar workers dropped 14% at 41 industrial sites where the health promotion program was offered, compared with a 5.8% decline at 19 sites where it was not.

·         *                       The Travelers Corporation claims a $3.40 return for every dollar invested in health promotion, yielding total corporate savings of $146 million in benefits costs. Sick leave was reduced 19% during the four-year study. In addition to improving the overall health of 36,000 employees and retirees by reducing poor health habits and increasing good ones, The Travelers realized cost savings by decreasing the number of unnecessary visits to a doctor and emergency rooms. In a similar but smaller study, members of a Travelers fitness center were absent from work significantly fewer days than nonmembers.

·        *                       The Stay Alive & Well program at Reynolds Electrical & Engineering Company, based in Las Vegas, cost $76.24 per employee during the two years it has been in operation. Over half of the 1,600 employees participated (with up to 80% participation rates in the intervention program). Participants significantly lowered cholesterol levels, blood pressure, and weight and experienced 21% lower lifestyle-related claim costs than non-participant. Resulting savings: $127.89 per participant with a benefit to cost ratio of 1.68 to 1.

·         *                       Superior Coffee and Foods, a Bensenville-Illinois-based subsidiary of Sara Lee Corporation, attributes impressive results to the success of the company's comprehensive wellness program. Superior showed 22% fewer admissions to a hospital, 29% shorter hospital stays, and 42% lower expenses per admission when comparing costs for this division’s 1,200 employees with costs for other divisions. Long-term disability costs were down by 40%. Superior Coffee and Foods has earned WELCOA's Well Workplace Gold award.

·         *                       With medical costs per employee at $6,000, nearly twice the national average, Union Pacific Railroad introduced the concept of personal health management to its 28,000 employees, mostly union and blue collar, in 19 Western and Southern states. Beginning with a modest medical self-care initiative at an annual cost of $50 per person, the program achieved a net savings of $1.26 million. In addition, a voluntary program to help employees lower health risks projected a cost-benefit ratio of 1 to 1.57 after one year. Employees in a treatment group lowered their risk of high blood pressure (45%) and high cholesterol (34%); others moved out of the at-risk range for weight problems (30%); and 21% stopped smoking.

·      *                        Average medical costs of high-risk Steelcase employees--those whose lifestyles include two to four health risks such as smoking, little exercise, overweight--are 75% higher than those of low-risk employees. But high-risk employees at this Grand Rapids, Michigan-furniture manufacturing company who improved their health habits through the company's health promotion program and became low risk cut their average medical claims in half thus lowering their medical insurance costs by an average of $618 per year. If all high-risk employees (20% of the total employee population) in one location changed their lifestyles to become low risk, the projected savings could total $20 million over three years.

·       *                        Employees at Berk-Tec, a small manufacturing company in Lancaster County Pennsylvania, learned self-care techniques and lowered their company's health care costs in one year. By using a self-care guide, the 938 employees and their family members made smart medical decisions and saved $21.67 per employee and dependent a nearly 18% reduction in costs. By combining reductions in doctor visits and emergency room use, the company saved $39.06 per employee a 24.3% decrease in costs over the previous year.

·        *                      A medical claims-based study of 72,000 people insured through 285 Wisconsin school districts found a lower demand for medical services among those with access to disease prevention and self-care programs. Reductions in medical services results in savings for the Wisconsin Education Insurance Group of as much as $4.75 for each $1 spent, higher savings were found in the group receiving access to a 24-hour phone-based nurse advice line, a self-care reference book, and health education materials.

·         *                        CIGNA's Healthy Babies prenatal program delivered an average savings of $5,000 per birth by providing expectant mothers with educational materials and rewarding early and regular prenatal care. And 80% of participants had normal births without complications compared with 50% for non-participant. CIGNA is a member of the Wellness Councils of America.

·         *                        With savings estimated to be as high as $8 million, the California Public Employees' Retirement System sent its 55,000 retirees a health risk appraisal followed, in some cases, with individualized reports and letters and self-care materials to encourage change and help reduce health risks among retirees and at the same time reduce the health care claim costs. In another study, Bank of America retirees in California who chose the full health promotion and demand reduction program showed a decrease in total direct and indirect costs of 11% compared with an increase of 6.3% for those who completed only a simple health questionnaire.

·        *                       With lower health care claims, medical costs decreased 16% for employees in the City of Mesa (Arizona) who participated in the comprehensive health promotion program. The city realized a return of $3.60 for every dollar invested in the health of city employees.

·          *                       To prevent back injuries among its employees, a county in California targeted white- and blue-collar workers, offered classes and fitness training. As a result, there was a significant increase in employee morale, reduced worker's comp claims, medical costs and sick days related to back injuries producing a net cost-benefit ratio of 1 to 1.79.

References are available upon request

Added Value

The Economic Benefits of Physical Activity

The most widely used measure of the economic benefits of physical activity programs is the benefit/cost ratio. The benefit is expressed in amount of dollars saved from lower medical costs, less absenteeism, or reduced disability expenses. The costs in the equation refer to the cost of the physical activity program. The ratio is money saved divided by the money spent. For example, a benefit/cost ratio of 3.43 would mean that $3.43 were saved for each $1.00 spent. Benefit/cost ratios reported in the literature for physical activity programs range from .76 to 3.43 (see Table 1).

Of course, physical activity is just one part of worksite health promotion which may also include health risk assessment and behavior modification strategies for nutrition and weight control, stress management, stop smoking, blood pressure control, etc. There are many other studies reporting positive benefit/cost ratios ranging from 1.15 to 5.52 for a variety of health promotion programs (Messer and Stone, 1995). Some of those benefit/cost studies were conducted on comprehensive health promotion programs which included physical activity along with stress management, weight control, nutrition education, stop smoking, etc. These studies were not included in Table 1 because the specific benefit/cost ratio for isolated physical activity was not reported. It should be noted as a reminder, though, that all benefit/cost ratios reported for comprehensive health promotion programs are positive, meaning that the benefits of health promotion outweigh the costs of the program.

In addition to benefit/cost studies, there are health risk appraisal publications that have reported lower annual medical claims costs for exercising individuals (low risk) compared to sedentary (high risk) individuals (see Table 2). However, the differences between the high risk and low risk medical costs reported by Bertera (1991) and Yen et al. (1991) in Table 2 are statistically non-significant.

Influencing Health Care Costs with Fitness Interventions
Additional information is provided in this section to supplement the evidence cited in Tables 1 and 2.

     ·      In a study that spanned 14 years, Cady (1985) showed that the fittest employees had only one-eighth as many injuries as the least fit employees and that unfit employees incurred twice the amount of injury cost.

     ·     Baun (1986) showed that exercisers in a Tenneco fitness program had $553 lower health care costs per person compared to non-exercisers.

     ·     Gettman (1986) found that physically active employees at Mesa Petroleum Co. spent $217 per person less on medical claims and had 21 hours per person less of sick time than sedentary employees.

     ·     Describing an Army staff project, Karch (1988) noted that participants who logged the most hours of exercise had the greatest decrease in the number of health services used.

     ·     Tsai et al. (1988) showed that injury rates and costs associated with injuries decrease as physical activity levels increase.

     ·     Shore et al. (1989) reported that back fitness improved in municipal workers after six months of exercising and that injury-related absences dropped 0.25 day while non-participant absences increased 3.1 days.

     ·     Shephard (1992) reported a zero increase in medical costs for a company with a fitness program and a 35% increase in medical costs for a company with no fitness program.

     ·     Connors (1992) reported that GE Aircraft employees who were members of the fitness center for three years lowered their average annual health care costs from $1044 to $757 per individual. In contrast, non-members increased their average annual health care costs from $773 to $941 per person.

It has been established that physical inactivity increases the risk for several health problems and diseases (Blair et al., 1992). Logic tells us that if a person is inactive (sedentary) and develops more health problems than an active person, the sedentary, unhealthy, or diseased person is going to spend more dollars on health care than the healthy, active person. Therefore, physical activity that leads to healthier living will be economically beneficial because fewer dollars will be spent on health problems.

A Conservative Consensus Statement
The consensus statement published by the Association of Worksite Health Promotion indicates that worksite health promotion, including physical activity, may produce health care cost savings making the programs economically beneficial (Kaman, 1995). This conservative statement is based on criticism directed at past health promotion research. Despite the consistent finding that worksite health promotion is effective, critics claim that weak research methods were used. Study groups have been self-selected and biased, and there has been a lack of control groups and a lack of random selection in comparison groups. In addition, there are other factors besides health promotion that may reduce health care costs, and research is needed to identify the specific independent influence that health promotion has on health care costs.

While some of this criticism may be warranted and while research on any topic can always be improved, we cannot negate the consistent findings of the wide variety of investigative approaches that have reported the positive economics of worksite health promotion, including physical activity. R.J. Shephard, a pioneer in worksite fitness research and one of the most respected professionals in the field, states that "large, randomized, double-blind, controlled experiments are not feasible in the context of worksite exercise programs" (Shephard, 1996). And, as an additional point, randomly selecting individuals into groups for research purposes raises some sensitive ethical questions. For example, randomly selecting a person into a sedentary control group and then asking that person to remain sedentary for the sake of good research denies that person the opportunity to change behavior, become active, and reap the rewards of a healthier lifestyle. Most of the past research conducted on the economics of physical activity have used observational methods and descriptive statistics. In the opinion of this author, it is not weak research to observe what happens in a group of people over time and then report the descriptive statistics.

Conclusion
Considering the evidence presented through a wide variety of studies, it is concluded that physical activity is economically beneficial. Future research should continue to document the specific relationship between physical activity and the economic costs related to health care and sick time.

Major Sources of Information
Acknowledgment is given to five excellent review documents that summarize the research related to the general topic of health promotion and its associated economics. The reader is strongly encouraged to review these documents.

     ·     Shephard (1996) examined the methodology of 52 studies on worksite fitness and exercise programs and concluded that participants in these programs show improvements in health-related fitness, a reduction of cardiac risk factors, and a containment of illness. Health promotion practitioners should encourage the development of fitness and exercise programs for both large and small companies and foster employee participation. Researchers should explore further the association between changes in fitness and the economic benefits to the employer.

     ·     Messer and Stone (1995) provided a thorough review and analysis of the studies reporting positive benefit/cost ratios for worksite fitness and health promotion programs. The state of the art in benefit/cost analysis is increasingly rigorous and defensible. Ultimately, benefit/cost analysis may provide the framework for establishing the economic viability of worksite fitness.

     ·     Kaman (1995) edited the second major volume on the topic of worksite health promotion economics sponsored by the Association for Worksite Health Promotion. The consensus statement in this book details the current knowledge on the impact of health promotion on health care costs.

     ·     Opatz (1994) edited the first major volume on the economics of worksite health promotion sponsored by the Association for Worksite Health Promotion. Part I of the book addresses the problems in trying to measure the costs and benefits of health promotion; Part II describes the proper techniques for evaluating programs, and Part III profiles programs at specific worksites.

     ·     Pelletier (1993) published the second in his series of articles that summarize the impact of health promotion programs on health and cost. From 1980 to 1991 there were 24 published studies indicating positive health benefits and economic results and from 1991 to 1993, another 23 studies indicated the same. Pelletier states, "When anyone cavalierly dismisses [these] studies with the glib dismissal of 'there is no evidence,' they are simply ignorant of more than 13 years of increasingly sophisticated data.

Economic Benefits Table

Reshaping Bottom Line

Johnson and Johnson Study

Employees Benefit and the Johnson & Johnson Company Saves $8.5 Million Annually

An evaluation of the financial and health impact of a large-scale corporate health and wellness program conducted for Johnson & Johnson has shown that participating employees have significantly lower medical expenses and achieve overall health benefits in risk categories such as high cholesterol, hypertension and smoking.

The study conducted for Johnson & Johnson by the Medstat Group of Ann Arbor, analyzed medical insurance claims for 18,331 Johnson & Johnson employees who participated in its Health & Wellness Program from 1995 to 1999. Savings of $225 annually per employee came from reductions in hospital admissions, mental health and outpatient visits. Employee medical expenses were evaluated for up to five years before and four years after the program began. Johnson & Johnson savings averaged $8.5 million annually.

"These results highlight the significant impact that integrating large-scale corporate health and productivity management programs can have on company medical expenditures," said Ronald J. Ozminkowski, lead author of the financial findings, which appear in the Journal of Occupational and Environmental Medicine. (January 2002)

Currently more than 90 percent of all eligible domestic employees participate in the wellness and fitness program, up from 26 percent when the program began. To encourage participation Johnson & Johnson offered employees financial incentives.

"As a result of an aging workforce and the inherent stress in employees' lives, corporate decision makers will seek innovative programs that promote health and reduce costs," said Dr. Fikry Isaac, Johnson & Johnson director of Occupational Medicine, Health and Productivity.

Employees benefited not only from financial incentives but through significantly reducing their health risks in eight of 13 risk categories including tobacco use, sedentary lifestyle, high blood pressure, high cholesterol, low dietary fiber intake and poor motor vehicle safety practices. According to Ron Z. Goetzel, lead author on the health results study, "The improvements we found to the overall health of employees should contribute to long-term health cost avoidance and increased productivity."