Addressing Rising Health Care Costs at Duke
Kyle Cavanaugh, vice president for Human Resources
-- By Marsha A. Green
September 01, 2010
Kyle Cavanaugh, Duke's vice president for Human Resources, keeps close watch on the cost of health care provided to faculty and staff and their dependents through Duke's insurance plans. Currently, more than 27,000 employees are enrolled in Duke's health plans. Including dependents, the plans cover more than 57,000 individuals - a benefit that cost Duke approximately $145 million in 2009.
Working@Duke sat down with Cavanaugh recently to discuss the road ahead for health care costs and benefits at Duke.
How is national health reform affecting Duke's health plans?
There are many pieces still in motion, but we know we will see changes every year between 2011 and 2018, when the legislation should be fully enacted.
For 2011, there will be two big changes for employees. The first is that Duke will offer coverage for children up to age 26, whether or not they are full-time students. The second is that in January 2011, under the new legislation, the government will no longer allow over-the-counter medications without a prescription as an eligible expense for a reimbursement account. That means, for example, that you won't be able to use your WageWorks card to pay for aspirin or cough syrup unless you have a physician prescription for it.
In addition, national health care reform legislation (the Patient Protection and Affordable Care Act) requires significant increases in reporting requirements by employers to the federal government including the reporting of employee and dependent social security numbers.
What is happening to Duke's health insurance costs?
The good news is that Duke's health care plan costs are lower than what we see in virtually any other group we measure against - peer institutions, academic medical centers and local employers. We are self-insured, which means we fund the plan based on how much it costs us to pay for the care our employees and their dependents use.
The bad news is that our costs are still going up. In 2009, we spent $145 million on health care. That was $9.5 million more than we spent in 2008. Although changes put in place for 2010 have helped mitigate increases, we continue to see increases in utilization.
We have arguably some of the most competitive health insurance plans out there for faculty and staff, but we will be challenged in maintaining that status over the next few years.
What is driving the costs?
The primary drivers are the steady increase in the number of people in the plans, medical inflation and our increased use of health care services, facilities and medications. Take the simple decision of whether you use a primary care physician, an urgent care facility or an emergency room for care. Each has different costs and levels of care. Sometimes people access more costly options such as the emergency room for less severe issues. That decision, amplified over 57,000 people we cover, has tremendous cost implications. Similarly, each person's choice to ask for generic rather than brand medications when appropriate, amplified by thousands of prescriptions, has a huge impact on our costs.
How is Duke containing costs?
Last year we saw a significant jump - 18 percent - in the overall cost of medications. This compelled us to address the issue immediately. We created incentives to use generic medicines, which are less costly. In the first half of 2010, we moved from 69 percent use of generics to 75 percent. That's important because for every 1 percent we move the needle, we save about a half-million dollars over the course of the year.
We also focused on increasing the use of mail order for maintenance medications. We negotiated excellent mail-order pricing, and now offer that same pricing through Duke Pharmacies. Last year, only 24 percent of the population requiring regular medications used mail order. In the first half of this year, that rose to 48 percent.
Because of these steps, we paid $2.7 million less for prescriptions in the first six months of 2010 compared to the first six months of 2009. That savings directly impacts the overall cost for health care at Duke for next year.
Are there other ways to generate savings to counteract rising costs?
The key is for people to understand how individual decisions around healthy lifestyles and consuming health care affect Duke's health care costs. These two related factors are critical for everyone to understand.
But we are also looking at other strategies for managing our costs. The physician network for Duke Select and Duke Basic, which most Duke employees use, will be refined for 2011. One benefit of this will be that most of the physicians will access the same electronic records system, allowing them to better track a patient's overall care and use aggregate data to spot trends and improve treatments.
Will health insurance costs impact other benefits at Duke?
We will continue to be as cost effective and cost efficient as we can, but ultimately there are going to have to be tradeoffs. Do we give a salary increase, or do we invest to maintain our health care benefits? In some years, we may not be able to do both. This is the new world order, and as an employer, we're going to have to look vigilantly each year at the costs and tradeoffs.
However, we are incredibly fortunate because Duke University Health System provides the majority of the care our employees use. We know a lot about our population, and we have very collaborative relationships with all the groups involved. If anyone has a shot at containing health care costs in a healthy, prospective way, Duke does.