Cole Separate health coverage categories

November 21, 2008
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A Grand Rapids human resources executive has a suggestion for restructuring health care costs for the working population to remove the biggest burden from employers.

Tom Cole, who has 40 years in the human resources business, told the Business Journal that as director of benefits, compensation and safety for Amway Corp. from 1978 to 1994, he noticed something: 10 percent of employees accounted for 80 percent of health care costs.

“Year after year after year, I looked at our expenditure and saw that about 10 percent of the people covered account for about 80 percent of the cost of our claims each year,” Cole said of the self-funded, self-administered health care program he oversaw for the Ada-based direct sales firm.

“When you looked at the claims, you found that they were significant medical technology — in other words, the ability to do things we’d never been able to do before. It’s preemie babies at one pound; it’s separating Siamese twins; it’s bone marrow transplants; it’s all the fancy testing we have with the CT scans and PET scans.”

The company once covered $900,000 worth of care for a premature baby and $250,000 for a bone marrow transplant, Cole recalled.

Keeping that in mind, Cole suggests developing a system to pay for health care that shifts the high-level cost of catastrophic care to the federal government in a Medicare-style system, but retains employer-provided health care for the majority of people with mundane, everyday coverage needs.

“If we focus on providing a taxpayer-like, Medicare type of program to pay for claims that are beyond the reach of ordinary people — anything over $50,000, for example — maybe that’s a tax that every employer, every taxpayer has to pay,” said Cole, who today is a consultant with P3 Human Resources Consulting and Services, a local human resources firm. “That money would go into some kind of a fund … that takes care of those catastrophic expenses that make people so afraid.”

He said he is uncertain how large that tax would need to be.

“I see that that’s a piece that no individual, no individual company … should have to bear that cost,” he said. “Fewer and fewer employers are providing health care to their employees as their cost goes up and their revenue goes down. They need to find something, so the smaller ones start cutting back.”

Claims under $50,000 would be covered under employer-provided insurance, explained Cole, who worked at General Motors in the worker’s compensation area from 1965 to 1978. He’s also a five-year veteran of Varnum Consulting, where he took on temporary roles as CEO and human resources director for various clients.

“When you have a limit, and you say, ‘All right, I know that the risk is only to be, maximum, $50,000 a year per person,’ that’s a quantifiable kind of thing, and the actuaries like that a lot better,” Cole said. “And it also, I think, then takes that burden off the individual employer and makes them more competitive with … the countries that do, in fact, provide some kind of social health care, and it’s through the taxation of everyone.”

The reaction from insurers and specialists with highly paid practices is uncertain, Cole said.

“The family practice and GP and primary care providers at the expense of the orthopedic guys and the heart surgeons — that’s all the manifestation of whose ox is going to be gored,” Cole said. “Not to mention, then, the plethora of people who deal with administration, the thousands of insurance agents who receive commissions based on the premiums that they sell. There’s hundreds of thousands of people in the whole health care arena that are going to have a change in the way they’ve done business.”

Benefits for claims past the $50,000 probably should be limited in some way, Cole said. He pointed to an elderly relative who recently tried measures, paid for under Medicare, to improve his vision, with little success. He noted that other countries use commissions to decide when publicly paid services are a wise use of taxpayer dollars.

“At certain ages, they go, you know, it’s just not a good investment. Now if you’re 45 years old and you’re still able to keep producing for the country, if you will, then maybe we spend that $40,000 or $50,000 or $80,000 dollars replacing your heart. But if you’re 82 years old, maybe that’s not a good expenditure of taxpayer dollars,” Cole said.

“Is that cruel? I don’t know. But on a social type of program, that’s the kind of decisions you have to make.”

Cole emphasized that his idea is not aimed at Medicare recipients or the uninsured. He said that while wellness programs are nice, they don’t have as much financial impact as big claims for high-tech care.

In fact, he said, most catastrophic claims in his experience come not from diseases linked to lifestyle issues such as obesity, but from medical conditions that occur through no fault of the person, such as accidents, cancer or birth defects.

“When you look at those 10 percent of claims, most of those illnesses getting that treatment were not lifestyle-related,” Cole said. “Of course, the wellness people hate me saying that.”

But the economy’s dire straits mean that companies must make difficult decisions, Cole said.

“When you are in a situation where we are now, where revenues are going to decrease for just about everybody, every business, through this downturn in the economy, in order to continue to make a profit companies are going to have to find some ways to reduce expenses. When you’re looking at a spreadsheet that is dealing with projected revenues and expenses, you’re going to look at those things where you can make the biggest bang for the buck, and if health care is 10, 13, 15, 18 percent of those costs, you don’t have to change it that much to have a significant impact on your bottom line.”

Cole said his proposal is “just one little idea,” and money and politics stand in the way of bringing it to fruition.

“But I think you should look at where dollars are spent in the past 10 years and statistically break those down and … if you took that position, you’re not removing insurance companies from the equation, you’re not removing providers from the equation, and you’re not removing employees from the equation, but you are reducing the expense that industry has been bearing to try to compete globally, that the ball field isn’t the same, because these other countries tax people more to pay for — they think — free health care.”

Cole said he thinks the cost of health care has risen so much since the Clinton administration and hampered U.S. manufacturers from competing that they are now more willing to consider change, although that could be a long way away, he added.

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