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Managing Medicare's Costs

Wellness and retirement healthcare costs

For more than 30 years there’s been an ongoing debate about whether corporate wellness programs save money. Sometimes when these programs’ true costs and benefits are understood, the value they provide to the sponsoring corporations disappears.

Here’s an example: to reduce its health insurance premiums, a large firm decides to provide free health club memberships to its workers. Two years later the firm wants to determine whether this program has been cost-effective. After gathering information, a consultant writes a report saying that the gym memberships were cost justified because medical claims for those who regularly exercised were 50% lower than for those who didn’t use the gym.

Those types of studies were often done by the same consultants who had sold the employers the health promotion programs in the first place, complete with enrollment packets and publications touting the advantages of healthy lifestyles.

Some employers dropped these early efforts while others continued to support them only because they were viewed by workers as nice perquisites. But the employers who heard a consultant’s report saying that people who used the gym memberships were healthier probably knew that the same people had probably been among the healthiest before the program began. They were not the ones whose claims were responsible for the sharp hikes in the company’s insurance premiums.

Louise Russell, chair of the Rutgers University division of health policy, has been a persistent critic of overly simple cost justifications for certain preventive tests and wellness programs. After carefully evaluating the available data on various kinds of preventive screenings, she has said that most of them are not cost-effective. She wrote in a 2009 Health Affairs article that only two or three preventive tests and screenings have been shown to be cost-effective. She has also said that as a general rule, corporate wellness programs haven’t been shown to save money for the companies that sponsor them.

Occasionally a well-designed wellness program will save money for the company that sponsors it. Johnson & Johnson’s Live for Life wellness program, which started in 1979, has been the subject of several academic papers, including a study published in 2009 which found that for each dollar it invested in the program, Johnson and Johnson saved between $1.88 and $3.92. An earlier study in the Journal of the American Medical Association indicated that absenteeism was 18 percent lower at the Johnson & Johnson plants that voluntarily participated in Live for Life than at the plants which chose not to participate.

As an economist Louise Russell has conducted groundbreaking research to evaluate the societal costs and benefits of prevention. Her work has forced people to ask important questions like, “Which preventive tests really do save money for Medicare or for a health insurer?” For an individual, however, that’s not the question so much as, will I personally benefit from this program? If healthy workers use company-sponsored gym memberships to work out more frequently than they otherwise would have, they may have lower healthcare costs, even if the firm loses money on the overall program.

The only approach that’s been shown to reduce the incidence of chronic disease is a healthy lifestyle. Medical advances have helped treat diseases after they have been diagnosed. Except for inoculations, though, these advances have not been able to prevent diseases from occurring.

But healthy behaviors have been shown to prevent some diseases, particularly chronic ones. Seven out of ten deaths are caused by chronic diseases, according to the Chronic Disease Prevention website of the Centers for Disease Control. The website also says that “four modifiable health risk behaviors—lack of physical activity, poor nutrition, tobacco use, and excessive alcohol consumption—are responsible for much of the illness, suffering, and early death related to chronic diseases.”

For Medicare, the upsides promised by wellness efforts are enormous. People with six or more chronic diseases account for almost one-half of Medicare’s spending. Most of that is to pay for costly hospitalizations and other medical interventions in the last year or two of people’s lives. Encouraged by health economists who have said that chronic diseases are the prime culprit behind Medicare’s fiscal problems, Congress has in recent years added annual wellness visits, “Welcome to Medicare” physicals, and a full range of preventive tests to the list of services for which the government pays the entire cost.

Aging itself is not a disease, but older people are more susceptible to disease. Even if all serious diseases could be banished, people’s bodies would wear out in their tenth or eleventh decades. If most people lived well into their 90s, Medicare’s total costs would almost surely decline because it would avoid the large medical bills it pays keep chronically ill people alive. Medicare typically pays as much for someone’s care in the last year of life as it pays during all the preceding years. By contrast, it does not pay much for people whose bodies wear out and who die of obsolescence.

One of the most comprehensive analyses of the links between aging and healthier lifestyles was the 2008 University of Cambridge study of more than 20,000 men and women between the ages of ages 45-79. The study found that people who 1) did not currently smoke, 2) were active physically, 3) consumed alcohol in moderate amounts and 4) had at least five daily servings of fruits and vegetables lived 14 years longer than individuals who had only one of those healthy behaviors.

Because people are living longer today, does it mean that they are adopting healthier lifestyles? Advances in medical care are likely the chief reason for increasing longevity. But lifestyles may also play a role. Only 13% of today’s retirees, for instance, are smokers, down from 18 percent a decade ago. And data from the 1982–2004 National Long-Term Care Survey indicated that chronic disability prevalence among people 65 and above had declined at an increasing rate, some of that due to healthier lifestyles. There is concern, though, that these trends could be slowed or even reversed by rising rates of obesity, particularly among younger retirees.

If they pursue healthy lifestyles, retirees will likely live longer and have fewer chronic diseases. But because most of their costs are fully covered by the premiums they pay, their healthcare costs will increase if they live longer lives. It’s not unusual for people with comprehensive supplemental coverage to pay 80% or more of their total healthcare costs in annual premiums.

So, Medicare will likely pay much less over time if retirees remain healthy, mainly because it not have to pay for as many lengthy hospitalizations. And individuals will pay more, which they may not mind so long as they are in good health. ◊◊

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