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Meager Spending on Behavioral Health Treatments Appears to Result in Higher Healthcare Costs

Since the Covid-19 pandemic began this past March, we have all been forced – seemingly on a week-by-week basis – to adapt to whatever the ‘new normal’ has been prescribed for us at work, home and in our respective communities.

For many of us, change from the status-quo has been difficult to confront and accept. In fact, living in a perpetual ‘snow globe’ that is constantly shaken keeps us from digging out of a never-ending blizzard of newness. ‘Taking things day-by-day,’ a commonly-used phrase, is perhaps an understandable approach for each of us during these uncertain times.

It is no surprise then, that our behavioral health has been adversely impacted during 2020.

This Should be Important to Employers because…

A direct result of people with behavioral health conditions – such as anxiety, depression or a substance abuse disorder – can relate to low job performance, whether it be through absenteeism, presenteeism, or negatively impacting relationships with co-workers and peers.

Employers know that anxieties – regardless of the source – cause stress in the workplace and can negatively affect the entire business operation. Some undesired effects of this stress include:

  1. Higher Employee Turnover – Chronic stress may lead to high employee turnover because job satisfaction is compromised, and employees don’t feel fulfilled or satisfied with their work. Hiring and training of employees is expensive, both in time and money.
  2. Missed Deadlines – Low job performance equates into missing key deadlines, which can reduce overall organization effectiveness with customers, etc.
  3. Overall Company Reputation Suffers – An organization’s highly-regarded image – carefully earned over years and decades – cements the treasured trust given by the public. However, having a high rate of employee turnover may taint the perceptions of prospective employees, who may question if the organization is deficient in offering the ‘right’ kind of engaging and collaborative workplace culture.

Pandemic, Civil Unrest and Political Divide

According to a Boston University study published in the medical journal JAMA Network Open, anxiety and depression are rising among Americans due to the Covid-19 pandemic. Half of U.S. adults surveyed reported at least some signs of depression, such as hopelessness, feeling like a failure or getting little pleasure from doing things. For many, the problem is considered mostly angst rather than full-blown psychiatric illness, but it still requires genuine professional help.

Feelings of isolation and interpersonal concerns related to physical distancing fuels anxiety and depression. The study found the symptoms to be most common in young adults, low-income study participants and those who lost jobs or experienced Covid-19 deaths of friends and relatives. Even though the study was performed prior to the recent spike of civil unrest beginning in late May, other research suggests that racial unrest also contributes to angst and depression symptoms.  Additionally, the lack of civil discourse found in our political system causes anxiety for a growing number of Americans.

A New Source of Concern for Employers – Being Penny Wise, but Pound Foolish

Consulting firm, Milliman, recently analyzed commercial insurance claims for 21 million people and determined that employers and commercial insurers spend meager amounts of money on behavioral health treatments, even though people with behavioral health conditions tend to have higher healthcare costs from other medical conditions.

Is this a causality dilemma also known as the ‘chicken or the egg?’ Which comes first, the behavioral health condition(s) or other non-behavioral medical condition(s)?

At least with the Milliman study, there appears to be little consensus.

A key finding from the Milliman report was that 27 percent of the people who had a behavioral health condition (e.g. anxiety, depression or a substance use disorder) in addition to other medical problems accounted for 57 percent of the total annual healthcare costs across the entire study population. In other words, the annual costs for people who had a behavioral health condition were about 3.5 times higher than costs for people WITHOUT those conditions.

Under this context, it was determined that spending on behavioral health treatment was a mere fraction (4.4 percent) of total healthcare costs for the 21 million people. In fact, half of people with behavioral health issues had less than $68 of total annual costs for behavioral health treatment. Another 25 percent of behavioral patients had very limited spending on behavioral treatment, amounting to $68 and $502 per year.

The study’s findings may suggest that to reduce total healthcare costs, payers must ensure that people with behavioral health conditions receive appropriate treatment. Oftentimes, behavioral conditions exacerbate medical conditions, causing the cost for medical conditions to increase much greater than for those without behavioral conditions. Effectively coordinating treatment for those who have both behavioral and medical conditions may significantly help reduce the overall costs.

Most health insurers include behavioral health as a covered benefit, but according to a 2019 study by the Congressional Budget Office, commercial insurers and Medicare Advantage plans pay in-network behavioral health providers lower rates than Medicare – about 13 percent less for common mental health services. Because of this, behavioral health providers are inclined to stay out-of-network, making treatment more expensive for insured patients, who may forgo seeking appropriate care. A shortage of behavioral providers certainly contributes to the problem, but telehealth can help increase the availability of care.

It certainly does not help that, due to the pandemic, more employees are working remotely making it difficult to gauge their behavioral needs and deficiencies.

This study was commissioned by The Path Forward for Mental Health and Substance Use and funded by the Mental Health Treatment and Research Institute LLC. The National Alliance of Healthcare Purchaser Coalitions was one of the groups that launched the Path Forward initiative, and you can learn more about this study here.

Going Forward

Employers should work with their insurers and community health providers to explore new ways for employees and their family members with behavioral conditions to receive the most appropriate care from the provider community.  Perhaps consider using the collaborative care model in which primary care clinicians work closely with care managers and psychiatric consultants to care for patients and to monitor their progress over time.

Making your workplace less stressful can include keeping your lines of communication open.  Perhaps offer ‘lunch and learn’ sessions to talk about how to manage work tasks effectively, help set boundaries to separate work from family life, and develop an overall culture of wellbeing for all employees.

Carefully bridging the gap between mental and physical health is certainly worth the effort.

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Estimated Waste in Iowa Employer Health Premiums:
$2,400 Single/$6,600 Family

Imagine walking into a restaurant and being seated. Sometime after your meal, you receive the check and find an additional charge that was not indicated on the menu or previously mentioned by your waiter. The charge – before your gratuity is determined – is a 34 percent markup simply labeled, ‘Surcharge.’ After prodding the waiter, the sheepish but honest response is whispered to you: “The restaurant industry is bloated and inefficient requiring additional costs, and because of this, we must pass on this surcharge to our patrons.”

Truth be known, we are all paying this ‘surcharge’ in the healthcare that we purchase, as it is baked into our health insurance premiums and the out-of-pocket expenses we incur and pay. What is different from the hypothetical restaurant example, however, is there’s no transparency on how much these costs add up in healthcare. Opaqueness of this information allows this surcharge to be included on the final price tag – and the purchaser is no wiser.

In healthcare, it’s buyer beware – on steroids.

Healthcare Waste in the U.S.

To begin, defining healthcare ‘waste’ is somewhat tricky, but nonetheless important. Waste is defined by many in the industry to be resources that are expended in services, money, time, and/or personnel that do not add value for the patient, family or community. In fact, this non-value waste can actually harm patients, which adds more cost to the system.

I recently watched an Institute for Healthcare Improvement (IHI) webcast, “Let’s Get to Work on Waste in Health Care.” In addition to a wonderful Call to Action’ piece, IHI provided great examples of healthcare waste within the ‘Trillion Dollar Checkbook.’ The IHI used ‘trillion’ in this piece because the healthcare industry in the U.S. is about one-fifth of the nation’s economy (and growing), and the annual spend in healthcare during 2018 was $3.65 trillion. Healthcare waste in the U.S. is generally believed to be a comfortable one-third of the total spend – roughly one trillion dollars – about the size of Mexico’s economy. Click here for the audio and video of this webcast.

The IHI referred to a JAMA article published in 2012 by Dr. Donald Berwick, a highly-respected physician and health policy expert, and Andrew Hackbarth of the RAND Corporation. The article, “Eliminating Waste in US Health Care,” aptly describes that escalating healthcare costs is debilitating other worthy government programs, cheap drugs, erodes wages, and undermines the competitiveness of the overall U.S. industry. The percentage of waste that is built into healthcare costs, according to this paper, ranges from 21 percent to 47 percent, with 34 percent being the midpoint.

‘Litter Box’ of Healthcare Waste

So what healthcare waste is found in the litter box hidden from the public?  Plenty. A ‘less harmful strategy’ described by the JAMA authors would be to reduce waste that does not add value to care. They cite six categories of waste briefly summarized below, beginning with the largest estimated waste to the smallest:

  1. Administrative complexity – Government, private payers, and others create inefficient or misguided rules for providers. By comparison, in 2015, the U.S. spending on healthcare administration dwarfs the OECD countries. One example is that payers fail to standardize forms, consuming limited physician time in having to deal with onerous billing procedures. Multiple payers do not coordinate their efforts with those providing care. Estimated waste in 2011: Between $107 billion and $389 billion.
  2. Overtreatment – Subjecting patients to care that cannot possibly help them – based on sound science and patient preferences. This care is “rooted in outmoded habits, supply-driven behaviors, and ignoring good science by providing excessive and inappropriate care. Examples include using excessive antibiotics and opioids, performing surgery when watchful waiting makes better sense, and unwanted intensive care at end-of-life for patients who don’t want this. Estimated waste in 2011: Between $158 billion and $226 billion.
  3. Fraud and abuse – Issuing fake bills and running scams to get paid by government and private payers. Estimated waste in 2011: Between $82 billion and $272 billion.
  4. Pricing failures – Well-functioning markets produce reasonable prices that come from actual costs of production plus a fair profit. In healthcare, due to lack of transparency and competition, prices are several times more than identical procedures in other countries. Pricing failure includes payer-based health services pricing, medication pricing, in addition to laboratory-based and ambulatory pricing. Estimated waste in 2011: Between 84 billion and $178 billion.
  5. Care delivery failures – This includes poor execution and lack of widespread adoption of known best care processes, such as for patient safety systems and preventive care practices and are known to be effective. Better care saves money. Estimated waste in 2011: Between $102 billion and $154 billion.
  6. Care coordination failures – Care in the U.S. is fragmented, meaning that patients fall through the cracks, resulting in complications, hospital readmissions, and declines in functional status requiring increased dependency. Estimated waste in 2011: Between $25 billion and $45 billion.

New JAMA Study Released about Waste

A new study published in JAMA finds that roughly 20 to 25 percent of American healthcare spending is wasteful. Although this finding is slightly less than findings mentioned above, the estimated waste is considered to be an astounding $760 billion to $935 billion per year – comparable to government spending on Medicare. This waste exceeds national military spending and total primary and secondary education spending. This study also addresses the same six categories of waste explained earlier.

Waste in Iowa Employer Health Insurance Premiums

In our recent 2019 Iowa Employer Benefits Study©, we found the average annual single and family health insurance premiums are now $7,017 and $19,335, respectively. Using the midpoint of 34 percent waste (a number from the Berwick study), the annual waste built into the Iowa single and family premiums are $2,386 and $6,574, respectively. This estimated waste reflects the amount employers and their employees overpay which generates income for providers, healthcare industry vendors, health systems, and health plans.

Applying the midpoint for each of the above six categories of waste, I was able to estimate each of the six cost components for the health insurance premiums paid by Iowa employers and their employees. Below is a graphic that depicts the total estimated waste found in both the single and family premiums based on the six waste categories described earlier.


By tolerating waste, we unknowingly create and sustain a rising burden of out-of-pocket expenses, suppressed take-home pay, delays of care and other side-effects that harm our care and well-being. As mentioned in the IHI’s ‘Call to Action,’ “…it’s not just money that’s being wasted. The most precious resources – the workforce’s time, spirit and joy – are being unnecessarily drained by wasteful processes every day…No matter how many medical breakthroughs achieved…if we don’t remove waste in health care, our health systems cannot thrive.”

Healthcare waste comes from many different sources, which require multiple strategies to reduce at least a fraction of waste described above. Berwick believes that healthcare waste must be attacked through political means, such as simplification of administrative services and pushing back on irrational pricing. Others believe that enhancing regulation of healthcare monopolies can also greatly help.

Frankly, too many ‘insiders’ are afraid to speak critically about their wasteful piece of the healthcare system, fearing loss of promotion, employment or obtaining lucrative consulting contracts. This fear allows the status quo to remain largely unchallenged.

Whatever the solutions, we must begin to have an honest national discussion about the massive waste we pay to others who see this as their revenue and income. A logical start is for voters to ask candidates how they propose to cut waste and simplify our healthcare system.

With 20 to 47 percent of our health insurance premium and out-of-pocket costs considered to be ‘wasteful’, I’m ready to have this discussion.  Are you?

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Wellness Programs – New Study Confirms Cautioned Approach

During the past seven years, I have written a fair number of posts regarding wellness programs offered by employers. The core message of all blogs suggests that employers must have realistic expectations about what wellness initiatives will or will not do within the workplace.

A recent randomized clinical study published in JAMA is yet another reminder for employers to have tepid expectations when trying to keep their employees happy, healthy and less likely to incur more health costs. The study found that workplace wellness programs do not cut healthcare costs for employers, reduce absenteeism or improve the health of employees.

From the University of Chicago and Harvard, researchers used a large-scale approach that was peer-reviewed and included a more sophisticated design when analyzing BJ’s Wholesale Clubs. BJ’s has about 33,000 employees across 160 clubs. This analysis compared 20 randomly-assigned clubs that offered wellness programs with 140 BJ’s clubs that did not.

After 18 months of timeline analysis, this study revealed that wellness programs did not result in health measure differences, such as: improved blood sugar or glucose levels, reduced healthcare costs or absenteeism, or impacted job performance in a positive manner. In other words, employees with a wellness program did not experience reduced healthcare costs and other desired affects. I suppose one could argue that a year and one half was not enough comparison time to develop these conclusions.

One of the authors of this study, Katherine Baicker, dean of the Harris School of Public Policy at the University of Chicago, put it quite succinctly in a Kaiser Health News article: “[But] if employers are offering these programs in hopes that health spending and absenteeism will go down, this study should give them pause.”

What are your expectations about workplace wellness? Do you believe such programs, when appropriately and thoughtfully implemented, will greatly mitigate your healthcare costs, improve workforce productivity and reduce absenteeism? Maybe you feel these programs are a waste. From our 2012 Iowa Employer Benefits Study, employers shared their perceived ‘return on investment’ on the programs they currently had in place.

According to a 2013 “Workplace Wellness Programs Study” by researchers at the RAND Corporation, these programs only have a modest effect. This runs contrary to claims made by wellness firms that sell workplace wellness programs to employers. The report found that people who participate in wellness initiatives lose an average of only one pound a year for three years. Another finding is that employee participation in such plans “was not associated with significant reductions in total cholesterol level.” Smoking-cessation programs show some potential, but only “in the short term.”

Most likely, both skeptics and supporters of wellness initiatives will find ammunition to support their cause. Workplace wellness programs have grown to an $8 billion industry in the U.S., primarily as a direct result of rising employer health insurance costs.

This latest report may help stabilize any pre-conceived lofty expectations each of us may have about the benefits of workplace wellness programs. However, it must be noted that some employers have found value in these programs.

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