IBM's plan to save by upping workers' health care could inspire copycats

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As health care costs continue to rise, many corporations are passing the increases onto workers through higher health insurance premiums. One of the notable exceptions is IBM (IBM), which last week decided it could save money by actually taking the opposite tack.

The computer services giant says it will now pay for 100 percent of the primary health care coverage of its U.S. employees. Big Blue's move -- spending more upfront to prevent disease to be able to spend less on more costly disease treatment down the road -- may influence more companies to do the same, no matter what is ultimately decided in the health care reform debate on Capital Hill.

IBM is convinced that making such a sweeping change to its employee health insurance plan will save millions. The company said the $79 million it has already invested in wellness programs between 2004 and 2007 has saved the Armonk, New York company $191 million in health-related costs and improved productivity.

Paying for all employees enrolled in IBM health plans to receive full coverage for primary health care is simply seen as an extension of wellness efforts that have paid off handsomely. Under the plan that will start in 2010, there will be no coinsurance payments or deductible. The plan will cover in-network primary care with employee internists, family practitioners, pediatricians, general practitioners or primary osteopaths.

"We view this as part of an overarching strategy around employee well being that places a heavy emphasis on primary and preventive care and wellness programs to get employees actively engaged in managing their health," said Marianne DeFazio, director of health benefits at IBM.

An ounce of prevention

There is evidence that attention to employee wellness can pay dividends. IBM is putting an innovative spin on "value-based benefits design," a practice through which companies have eliminated the cost of a medical treatment as a way of lowering insurance claims within high-risk populations, said Paul Fronstin, director of the Employee Benefits Research Institute (EBRI) health research program.

For example, Fronstin said a number of employers have eliminated the co-payment for diabetes-related drugs and supplies as a way to get people with diabetes to stay in compliance with the treatment regiment. This helps keep them healthier longer and reduces overall insurance costs over time.

"What IBM is doing is sort of a new take on that," Fronstin said.

As a result of its wellness efforts, DeFazio said, less than 10 percent of IBM employees are smokers and over 80,000 of its 115,000 employees are currently physically active. As employees have better managed their health, DeFazio said health insurance costs at IBM have increased less dramatically. Over the last several years, health insurance cost increases nationally in percentage terms have ranged between the high single-digits and low double-digits, DeFazio says. Meanwhile, IBM's costs have risen in the low single digits.

"Our healthcare costs, while they continue to increase, have been increasing at a lesser rate than at most other companies," she said.

Consulting firm Hewitt Associates (HEW) estimates that in 2010, health care costs are expected to increase 6 percent, costing $9,120, up from $8,607 in 2009. The employees' share of that increase is expected to rise 10 percent to $4,023, up from $3,656, making the worker's burden to pay for health care heavier.

Follow the leader

Fronstin said that if IBM reports that its move succeeds in lowering health insurance costs, "other employers are going to look at it and make changes."

About 18 percent of companies surveyed paid 100 percent of their employees' health insurance costs in 2009, down from 20 percent in 2008, according to data from the Kaiser/HRET Survey of Employer Sponsored Health Benefits. If IBM manages to generate additional savings, the number of companies paying 100 percent of employees' health care costs could begin to increase. "It will take a year or two before IBM has some data on this, so [companies following] is not going to happen overnight."

While the move will definitely save employees money, it is important to note that while IBM is paying for primary care visits, employees still must pay regular co-payments for referrals to specialists. The new benefit will apply to all IBM-self insured medical plan options, covering about 80 percent of the company's workforce. (Other employees are covered by HMOs which provide most, but not all, preventive and primary care services at low cost or no cost after premiums are paid.)

The company also runs a healthy living rebate program which offers employees five different $150 cash incentives for improving their lifestyle. Studies have shown that paying cash incentives is an important part of making corporate wellness programs effective.

Could IBM's announcement have been timed to further arguments by those in the health care debate who favor insuring all Americans? It certainly broadens the scope of the conversation about what type of measures are truly effecting in bringing down the cost of health care.

"Creating smarter health care systems is about improving wellness and prevention -- keeping patients healthy, not just treating the sick," said DeFazio.

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