A New Way to Cut Health Care Costs
For nearly 70 years, Reliable Production Machining & Welding has been building undercarriage parts for construction equipment and lawn mowers. It has survived recessions, strikes, and skyrocketing steel and fuel prices. But in 2008, the Kendallville, Indiana-based business was confronted with its toughest crisis ever: paying for health insurance for its 162 employees. Premiums had risen some 25 percent over the past two years, to $750,000 a year. Something had to change.
The company had tried the usual approaches—including passing expenses on to employees, reducing coverage, and shopping for a less-expensive plan. This time, Reliable took a more radical step: It opened a part-time in-house medical clinic, complete with pharmacy, a doctor, and a four-person staff of nurses and physician assistants. Employees can make appointments online and stroll across campus for appointments. They pay nothing for visits, prescription drugs, or lab work. The clinic is run by an outside contractor—WeCare TLC Onsite Clinics, based in Lake Mary, Florida—and costs the company just $144,000 a year. An insurance policy covers things such as hospital stays, emergency-room visits, and appointments with specialists. Employees pay $50 to $100 a week for the coverage—a slight increase from what they paid under the old system. Copays for care outside the clinic are $25; copays for prescriptions filled at outside pharmacies are $60.
The 1,000-square-foot clinic, which cost $60,000 to build, has proved to be a good bet. The company slashed its annual medical expenses more than half and its annual prescription-drug expenses 64 percent, to $27,000. Those savings—along with layoffs that brought the work force to 58—helped cushion Reliable from the recession: Revenue fell from $25 million in 2006 to $15 million in 2010, but the company's profit margin actually grew slightly, to 5 percent. (Reliable's head count is back to about 110.) What's more, the clinic's easy access prompted workers who hadn't seen a doctor in years to get checkups; many ended up identifying conditions, like hypertension, that contribute to heart attacks and strokes. This sort of preventive care promises to keep costs down in the future. "It was a tough decision but absolutely the right one. We weren't going to let health care drive the company into the ground," says Greg Salway, Reliable's chief operating officer.
Opening an on-site health care facility may seem hopelessly retro, akin to the company store. But Ed Haislmaier, a health policy research fellow at the Heritage Foundation, expects to see more companies adopt the strategy. Employee health care costs rose 6.9 percent nationwide last year, the highest one-year leap in seven years, according to the consulting firm Mercer. "Costs," Haislmaier says, "have reached the point where it's worth trying new ideas."
Most of those opening private clinics are major corporations with large work forces, such as Intel and Hewlett-Packard. How does a small company like Reliable make it work? By partnering with other organizations.
In 2009, Reliable executives invited the city of Kendallville to join its new clinic. The city accepted, bringing its 77 employees and their dependents as patients. Together, Reliable and the city have enough people to keep the clinic open two days a week. Now, Reliable is looking for more partners. It's negotiating with a nearby 60-person manufacturing firm; if the company joins, that will allow the clinic to open for a third day. Kendallville Mayor Suzanne Handshoe says the city's insurance claims dropped 53 percent from 2010 to 2011, and more people can afford procedures such as annual blood tests to keep tabs on their health. The checkups prompted two of the city's employees to shed more than 100 pounds each after learning of their health risks. "The bottom line is, we want healthier employees," Handshoe says. "When you're having increasing premiums and deductibles, you're not going to spend the money to get blood drawn and wellness checkups." The city pays Reliable $6,000 a year to use the clinic and then pays WeCare $18 per employee per month.
Yet shared clinics can easily get complex, says Marne Bell, a senior consultant at Towers Watson, a New York City consulting firm that has tracked the on-site-clinic trend. "Who is in charge?" she says. "When you don't agree on services, what do you do?" (Salway says Reliable, which makes all major decisions about the clinic, has yet to encounter such issues.)
The clinic's success was no sure thing when the project began. In the midst of construction, the recession hit, and Reliable's orders plunged 60 percent. "We thought, Should we be spending the money on the clinic? Are we doing the right thing?" says Salway. Executives saw no other choice and plunged ahead.
With oak doors, ceramic tile floors, EKG machines, and new computers, the clinic is a stark contrast to the steel-and-concrete buildings on campus. The visual difference helped win over skeptical employees. "It's totally separate and very professional," says Linda Laisure, Reliable's bookkeeper, who takes her two children there. "I have never had to wait. They spend more time with you, and it's just a lot easier."