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A 'direct' way to lower health costs

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Has America tamed the health-cost monster? The data seem to indicate as much. Health spending has grown about 4 percent annually over the past four years — the lowest rate in half a century.

But our apparent victory may be short-lived. The recession was responsible for three-quarters of the slowdown in health spending. Costs could increase 7 percent annually by the end of the decade. American businesses can't afford that burden. Fortunately, they don't have to.

By offering consumer-directed health plans rather than conventional ones, firms can empower their employees to take control of their health — and save billions of dollars.

The status quo is crushing employers. The cost of an average family policy reached $15,745 in 2012, according to data compiled by the Kaiser Family Foundation. That's 30 percent higher than just six years ago.

Conventional health plans are costly because they cover almost every expense. Patients have an incentive to consume care they might not pay for on their own. Unlimited demand for care combined with limited supply yields higher prices.

Consumer-directed coverage, by contrast, provides patients with clear incentives to make smarter, more cost-effective healthcare choices. Such plans typically pair high-deductible insurance policies with health savings accounts (HSAs), where patients can sock away money tax-free to pay for things like annual checkups and prescription drugs.

The proceeds of an HSA roll over, so an account holder can build up a substantial healthcare nest egg if he spends his money wisely — or stays healthy.

Meanwhile, if a beneficiary faces significant medical expenses because of an emergency, he's protected by his high-deductible policy.

The evidence shows that consumer-directed plans effectively control health costs. In 2012, the average premium for a high-deductible plan was 10 percent lower than the average across all types of health plans.

The savings compound every year that employees are enrolled. The American Academy of Actuaries has determined that consumer-directed plans deliver savings of three to five percent after the first year, compared to a traditional PPO.

The 2,100-plus employees at my company, KI Furniture, have seen firsthand how consumer-directed plans can reduce costs and improve outcomes.

A yearly health risk assessment including biometric screening is at the core of our plan. This provides each employee with a sense of the health challenges he or she faces. Each employee receives an HSA contribution of up to $2,500 just for taking the assessment.

Employees have an incentive to score well on their screenings. The better they fare, the lower their premium — up to $1,500 in savings.

The result? Our employees save about $2 million every year on health premiums, compared to their peers. The company spends 10 percent less annually than similar firms. And our workforce suffers lower rates of conditions like asthma, breast cancer, cervical cancer, and heart disease.

We're not alone in recognizing the value of consumer-directed health plans. Caterpillar offers its employees $75 off their monthly health premiums if they take a health risk assessment. Fully 90 percent of its workforce participates. JetBlue offers up to $400 in discounts for health-enhancing activities, ranging from regular teeth cleaning to completing an Ironman triathlon.

Johnson & Johnson knocks $500 off its employees' premiums when they submit health profile data. Every dollar it spends on employee wellness generates $4 in savings.

Consumer-directed health plans comprise about 13 percent of all employer-sponsored insurance coverage. If they were to attain half the market, the American healthcare system could realize savings of $57 billion a year.

Those tens of billions of dollars are there for the taking. American businesses would be smart to seize them.

Dick Resch is CEO of Green Bay, Wis.-based KI Furniture.

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