At long last, forward-looking school leaders and teacher unions recognize they share the same goals and are proving that it’s not that difficult to slay the healthcare cost beast even in an expensive and contentious healthcare market. Philadelphia represents the model that is destroying education budgets while Pittsburgh represents the antidote to that poisonous approach. Philadelphia is like virtually every community in the country that I wrote about where teacher unions are on the wrong side of the negotiating table. In contrast, if teacher unions want to ensure their members get fairly compensated and schools aren’t further decimated by healthcare’s hyperinflation, they should follow Pittsburgh’s lead.
Redistribution “Tax” Steals from Kids
If the current trend continues, it means that the first graders entering the Allegheny County schools in the Pittsburgh area will collectively have $2 billion more available to their community to invest in education and services over the course of their school years. This is in stark contrast to how healthcare’s hyperinflation “tax” has redistributed money from education and middle class incomes to healthcare’s prolificacy. Ideally, the leaders in Allegheny County will follow the lead of the citizen in Orlando that reinvested money that would have otherwise been squandered on healthcare. In the process, he not only improved the health of his company and employees by saving 50% per capita on health benefits, they adopted a nearby neighborhood that was previously crime-ridden.
The investment over 20 years in daycare, pre-K, after-school programs and college tuition ($11 million) was just over what they save every year compared to similar sized companies. The results were breathtaking:
- Employees had their college education and their kids’ college education paid for (after a few years of service)
- Despite having 56% of their pregnancies classified as high risk, a proactive prenatal care program ensures that the health of the mother and baby are preserved by avoiding premature births and complications
- Employee retention is six times better than the industry average
- Crime rates in the adopted neighborhood decreased by 67%
- High school graduation rates more than doubled from 45% to nearly 100%
- So far, 450 (and counting) college educations have been paid for in the adopted community
I spoke with Jan Klein, who leads the Allegheny County Schools Health Insurance Consortium, about their efforts. Klein explained how they are just getting started. Their approach is very consistent with theHealth Rosetta blueprint for purchasing healthcare services wisely. They recognized that the status quo of health benefits is miserable. In a nutshell, they make wise healthcare decisions free or nearly free (e.g., primary care is free and going to high-quality providers has very low or no co-pays or deductible) and poor decisions are expensive. It’s much more subtle than counter-productive, blunt-instrument high-deductible plans that often lead to deferring care. The mostinnovative benefits advisors know that thoughtful plan design creates a win for all parties (e.g., high deductibles make sense for poor decisions).
[Disclosure: As I've disclosed many times, the Health Rosetta is a non-commercial open-source project that provides a reference model for how purchasers of healthcare should procure health services. In my role as managing partner of Healthfundr, a seed stage venture fund, the Health Rosetta is the foundation ofour investment thesis.]
Teachers Understand the Value of Education
Previously, I shared how the HR leader of a town and a small manufacturer demonstrated that the best way to slash healthcare costs was to improve health benefits. They described that a key to their success was to have what they dubbed an “adult conversation” to educate their employees so they understood the madness of healthcare pricing. For example, they explain pricing failure (i.e., no correlation between cost and quality) in healthcare through straightforward examples to show employees what the organization pays and the odd dynamics of healthcare. Some experts have corrected me and said there is a correlation between cost and quality–it’s frequently inversely correlated.
The small manufacturer demonstrated sustained success where they are paying 30% less per capita on health benefits by solving healthcare’s most vexing problem.
Originally things in Allegheny County were like the rest of the country where the teacher unions and school leaders were adversaries:
Hardly a day goes by without hearing about a threatened or actual teacher strike. Inevitably, a primary point of contention is health benefits. Collectively, the teacher unions and school boards are sticking a few more fingers in the dike. If they popped their heads above the dike, they would realize that a healthcare tsunami is headed their way. In the meantime, high quality schools and programs are being washed away. The collateral damage ranges from larger class sizes to fewer arts programs to reduced compensation for teachers. None of these casualties are good for kids or the nation’s future.
Klein described how the school and union leaders finally recognized they have shared goals. For example, if healthcare isn’t affordable, schools can’t provide salaries they would like to offer and teachers deserve. The consortium is now jointly managed with equal representation from both labor and management. When they have consultants join their meetings, they can’t tell who is labor versus who is management. Many times, it’s the union leaders (Dave Wyatt leads the labor side of the equation) who are more aggressive on pushing forward new initiatives.
Klein pointed out that the most important thing is you have to teach people how to get value. Naturally, teachers understand the value of education. The math is simple:
- You can’t make wise decisions without transparency. Transparent medical marketsensure a fair deal for the provider, employer and employee. It adds up very clearly for the employer: If they get a fair price from a high-quality provider, they’ll gladly waive co-pays and deductible as this brief video from one of the transparent medical market service providers describes.
- With proper value-based primary care, an ounce of prevention is worth a pound of cure. This is a stark contrast with the unfortunate reality where primary care has been turned into milk in the back of the store, designed to push people toward high-margin (and often unnecessary) services. Having studied both value- and volume-based primary care, it’s apparent that the volume-based practices effectively ration choices and quickly steer patients to overtreatment in the form of tests and procedures. After all, there isn’t a radiologist in the world who believes Americans should be receiving nearly 100 million CT scans every year. When there is a proper primary care relationship, they lay out all of the options available to a patient. For example, when an individual is educated that ~90% of spinal procedures could be more effectively addressed by alternative approaches such as physical therapy, they almost always choose the less invasive option. A good price on an unnecessary procedure is still a bad deal.
- In Philadelphia, schools pay $8,815 cost per member for health benefits. In Allegheny County, the consortium has 48,000 members and pays $4,661 per member. In the Allegheny consortium, if they paid like Philadelphia, they’d be spending $199 million more every year. Over the course of a child’s K-12 education in Pittsburgh, that would add up to well over $2 billion that is available to a higher and better use.
The more one studies the collateral damage from healthcare’s under-performance, the clearer it becomes that the healthcare status quo is the single greatestimmediate threat to America. Without a doubt, the biggest underlying driver of the most interesting presidential election in my lifetime is the damage healthcare has done to the middle class.
The threat from healthcare is why an Oscar nominee and Peabody-winning filmmaking team are highlighting the inconvenient truth that there are two health systems in this country in an upcoming documentary with the working title Healthcare Heist. The better system is one that wildly out-performs the status quo on Quadruple Aim objectives but is available to only a small number of people—not because it’s more expensive but because it’sless expensive. The “preservatives” hellbent on preserving the status quo do their best to obfuscate this reality. The irony is there are low-income individuals paying for healthcare out of their own pocket (they aren’t eligible for Medicaid) that is superior to what 99% of Americans are getting—rich or poor. It only takes will on the part of employers to make this happen. Thankfully, innovative benefits advisors are guiding their clients to do this at increasing rates. Those benefits brokers who remain laggards will go the way of stock brokers.
Disclosure: I am a subject matter expert for the documentary due to my work on the Health Rosetta.
Fortunately, there are employers, school districts, unions and many others who are taking advantage of the open source Health Rosetta blueprint. I’m regularly asked to speak about how to thwart the heist at customer events for TPAs and benefits consultants, business coalitions, non-profit associations and public sector organizations. When I shared the sentiment I’m observing at these events with an executive producer of the documentary, he sent me a link to one of the most famous scenes in a movie. You might say they are mad at health and aren’t going to take it anymore.
This article was also published in Forbes
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Though their counterparts in Philly may tout their brotherly love, the education leaders in Pittsburgh are proving their love of serving kids led them to move past tired, old assumptions of labor and management being at odds. It’s clear that when teacher unions and school boards exhibit leadership and vision, they can slay the healthcare cost beast that has ripped to shreds education budgets throughout the country. Their leadership stands in stark contrast to the ongoing childish behavior of the two behemoths in Pittsburgh who demonstrate their selfish interests are more important than the community’s well-being. Fortunately, the Pittsburgh-area school leaders’ steely resolve in the face of local challenges should inspire school boards and teacher unions throughout the country.