How companies can resuscitate their health plans

July 9, 2013: 10:37 AM ET

All is not lost. Instead of opting for the penalty and sending your employees to the health exchanges, there are several ways to reduce health costs and treat your staffers decently.

By Tom Emerick and Al Lewis

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FORTUNE -- In theory, companies across the U.S. have spent the last several years implementing initiatives to make their health benefit plans more efficient, to maintain the option of offering every full-time employee "affordable" coverage (in which they pay no more than 9.5% of wages), as mandated by the Affordable Care Act.

Business leaders who spent those years betting on workplace wellness programs to reduce costs, you lose. Wellness programs don't reduce health spending. Even in the best-case scenario (committed employers and motivated participants) savings are elusive. Also, the companies that run these programs routinely fabricate outcomes. On top of that, even the Journal of the American Medical Association published an article that asserts that going to the doctor more often for more tests -- as many wellness programs recommend -- is a waste of money, and wellness programs occasionally harm the people they claim to help. So the bad news, all these efforts have been for naught.

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The good news is you've been given an extension. Companies with more than 50 employees now have until 2015 (instead of 2014) to make sure they have an affordable health plan in place. To help you use this extra year wisely, we recommend five short-term, money-saving initiatives.

First, even if you do keep your wellness program, stop poking your employees with needles. Biometric screenings actually drive your medical spending up through unneeded physician visits, leading to overtreatment, which is why the National Heart, Lung, and Blood Institute and most experts are opposed to them. For instance, to even potentially prevent one $50,000 heart attack, you need to screen 4,000 people at a cost exceeding $1 million.

Second, fire your health care consultants. They've probably been around so long they can't be trusted to objectively evaluate the programs they helped implement. New consultants will cost less (go out and bid for a fixed-price all-in advisory contract, and you'll be amazed how the fees tumble) and will look more objectively at the programs you've accumulated. If you use health insurance brokers, you'll benefit even more by tossing them because the more you spend, the more they make. Brokers work for themselves, not you, and push programs that offer the best "revenue streams" to them -- at your expense.

Third, conduct an old-fashioned claims and eligibility audit to make sure that you are paying only valid claims on people who are actually eligible for your health benefit. You would think there would be no savings here because knowing who is eligible to have which claims paid seems like Health Insurance 101. However, the very existence of companies that perform 100% contingency-based audits – and contractually cede the "last word" to you on what gets counted as savings -- means that there is money to be saved.

Fourth, do you know how much money your prescriptions benefits manager makes off each prescription? Of course not. PBMs hide their profitability with layers of rebates, implementation allowances, low or nonexistent direct fees, and other smoke-and-mirrors contractual clauses that make it impossible to estimate their per-drug markup. Our advice: Negotiate that markup directly.

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Fifth, a small percentage of your employees generate a large percentage of claims due to ongoing health needs, but focusing your wellness program on the 80% of people generating 20% of claims means that you are overlooking these outliers, most of whom have health conditions that were not preventable. Wal-Mart (WMT) and others offer these employees free travel to destinations around the country that specialize in treating their conditions and can cut health costs radically by improving outcomes. Avoid the big academic medical centers -- your goal is to get employees back to work, not become guinea pigs for medical students. Instead, use medical destinations that focus on (and agree to get paid for) outcomes, like Mercy Spine Center in Springfield, Mo.

With a few tweaks, affordable health coverage might look like a much more viable alternative to the state health exchanges or penalties in 2015 than it does today.

Tom Emerick and Al Lewis are coauthors of Cracking Health Costs, published this month by Wiley. 

Editor's note: A previous version of this story erroneously suggested that the American Medical Association has taken the position that going to the doctor more often is a waste of money. Rather, The Journal of the American Medical Association has published a paper that makes this argument. 

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