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When Government Flexes Its Employer Muscle

By David Sandman, President and CEO, New York State Health Foundation
Published in the Huffington Post on March 9, 2016

When you think of “government,” what is the first thing that comes to mind? Depending on your point of view, and your politics, your ideas about government may be different from mine, or your sister’s, or your neighbor’s, or your uncle’s. But I’d bet that none of us first thinks, “Employer!” when considering the government.

Except lately, I’ve been thinking a lot about the role of government as an employer, and the creative ideas that local and state governments have experimented with and implemented. It makes sense: local and state governments cover millions of employees and their family members. In fact, state employee health plans are the second-largest area of state health care spending, lagging only state contributions to Medicaid. They have the size and the clout to be in the vanguard when it comes to implementing innovative changes that can promote health, save money, and lead the way for other employers. The private sector could learn a lot from what these employers have been trying out.

For example, the New York City Mayor’s Office recently announced sweeping changes to health care benefits for City employees, designed to help employees make better decisions about their care and ultimately to achieve cost savings. These are important (and long overdue) changes that should be applauded. The City used a data-driven approach to identify opportunities to encourage the use of primary care and preventive services, to improve health outcomes, and lower healthcare costs for municipal employees.

The City has also invested in wellness initiatives designed to keep employees healthy, not just ensure they get care when they’re sick. For example, New York City employees now have access to the National Diabetes Prevention Program, a well-studied initiative that helps participants lose 5-7% of their body weight and decrease their risk of developing diabetes by 50%. The program is also cost-effective, generating savings averaging $129 per participant after three years.

Together, these changes are expected to save more than $3 billion in New York City’s health care spending by the middle of 2018.

New York State is also focusing on making needed changes to its employee health benefits. The New York State Health Insurance Plan covers 1.2 million enrollees and dependents; it is one of the largest group health insurance programs in the country. One priority will be to create incentives for health care providers to reward those that successfully improve the quality of care while reducing health care costs. This approach is aligned with the State’s goal to have 80% of all health care payments made under value-based arrangements by 2020.

Other states have also been active in this area. The California Public Employees’ Retirement System (known as CalPERS, the largest public pension fund in the United States), for example, saw that osteoarthritis was a big cost driver. And the costs were unrelated to the quality of care and outcomes; more expensive treatment didn’t translate to better care. So CalPERS adopted a value-based purchasing model for hip and knee replacement procedures: it limits its own contribution to roughly the median of what these procedures cost in the market. Patients who want to choose a more expensive option may do so, but have to pay the entire difference; this approach is known as “reference pricing.” The introduction of reference pricing for hip and knee replacements led to members paying an average of 30% less per surgery, and achieved $5.5 million in savings in the first two years. Importantly, the change also yielded improvements in health care quality, with participating facilities reporting fewer patient complications and fewer infections.

In Connecticut, a $3.8 billion budget deficit sparked the introduction of a value-based insurance design, focused on both achieving savings and improving health (a running theme!). Its Health Enhancement Program focused on five chronic diseases that were prevalent among State employees and their dependents and identified as key cost drivers: asthma, diabetes, hypertension, high cholesterol, and chronic obstructive pulmonary disease (COPD). The State introduced lower co-pays for the medications required to manage these conditions and eliminated co-pays for related office visits; it also introduced disease education programs to help patients better understand and manage their conditions. The initiative successfully increased the use of preventive services and medication adherence and stemmed the growth in medical and pharmacy costs.

These are just a few examples. And, to be clear, government is not always at the forefront of these types of innovative ideas; sometimes they are what I would call “sleeping giants” that could do much more to develop and implement creative solutions. Private employers all across the country are experimenting with ways to improve their employees’ health and achieve more value for their health care dollars. Companies big and small are implementing proven wellness initiatives like the National Diabetes Prevention Program and testing and evaluating new models of value-based purchasing, disease management, and workplace wellness. The approaches that seem to get the most attention are those in the private sector—mostly large companies like Johnson & Johnson or Pitney Bowes. But as employers design their health plan options and wellness programs, it will also be worthwhile to look to the government employers that are leaders in this area and learn from their example.

Follow David Sandman on Twitter: www.twitter.com/davidsandman1