The Total Cost of Care Approach to Health Care Costs

David E. Williams

The Total Cost of Care Approach to Health Care Costs

Health care costs are high in the U.S. and are rising every year. As noted by The World Bank, in 2014, health care expenditures comprised 17.1 percent of the GDP, the highest percentage in the world. According to HealthPartners, this figure is projected to pass the 20 percent mark in 2018.

Employers who offer health benefits plans are keenly aware of the pressures imposed by rising health care costs. However, until recently, employers have lacked the resources to manage these costs. Organizations now have access to the analysis of Total Cost of Care (TCOC) metrics, allowing them to begin to control costs.

The Components of TCOC

There are several ways of calculating TCOC, but there is some consensus as to its basic components. According to Health Catalyst, for a given health-related event, TCOC is defined as the costs associated with all care at any facility, including costs out-of-network, as well as in-network. Hospitals and Health Networks defines TCOC as a product of utilization and price. Utilization refers to the volume and intensity of services delivered. Price refers to the dollar value paid out by the payer, not the cost of delivering care incurred by the provider.

The link between utilization and price provides the key to understanding why TCOC is an important metric. Hospitals and physicians who deliver high-quality service at lower costs may be able to offer lower prices to payers. Payers, in turn, can offer lower cost plans that encourage employees to seek lower-priced, high-quality care.

Why it is Vital for Companies to Recognize the Importance of TCOC

Unhealthy employees consume disproportionately large portions of health care costs. The Center for Advancing Health reports that each morbidly obese employee costs an employer $4,000 more per year than an employee of normal weight. Research published in the Journal of Occupational and Environmental Medicine showed that absenteeism (missed workdays) attributable to obesity cost U.S. employers $8.65 billion per year. Numbers such as these have driven some companies to initiate wellness programs, and these programs are beginning to show results that appear promising.

In 2016, a report from Springbuk, an employer-facing health intelligence platform, announced a study of two companies who implemented Fitbit corporate wellness programs. As noted by Business Wire, the study found that the average health care costs of employees who participated in the program were 24.5 percent less per person in TCOC than those in the control group. One of the two companies participating estimated an employer cost savings of $2.3 million along with healthy outcomes for program participants.

How to Educate Employees on Health Care Costs

If your business is not ready to invest in a corporate wellness program, there are interim measures you can take to educate your employees on how to reduce health care costs for themselves and for your business.

  • Track Health Expenditures – The maxim “you do not change it if you do not measure it” applies to health care, too. Help your employees track their annual health spending using spreadsheets or other similar tools. You may find that the simple act of keeping track of spending will help reduce total costs.
  • Cost Estimation Tools – Several payers provide tools that permit members to price doctors and hospitals. This allows employees to make informed decisions regarding quality and cost.
  • Telemedicine – Reducing expensive, unnecessary care has become a major focus in recent years. Many plans and organizations now offer telemedicine programs that allow members to avoid expensive emergency room visits.
  • Medication Monitoring – Employees are increasingly becoming involved in managing the high costs associated with prescription medicines. There are options now that permit employees to evaluate whether they should choose a less-expensive generic medication over an expensive proprietary drug. Other programs provide savings on prescription drugs by allowing patients to opt for home delivery of their chronic medications.
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Businesses no longer consider managing health care costs to be an option. Now, more than ever, managing health benefit costs is a necessity. Understanding Total Cost of Care and the ways to manage it is a good place to begin getting the problem under control.

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