Humana’s CEO Discusses Future of Health Care

In a recent Fortune article, Michael McCallister, Humana’s CEO, discusses his company’s history, the new health care law, and individual wellness. Recalling the history of the company, McCallister describes Humana’s core business and the evolution thereof. His discussion focuses on the current health care system and the health care reform law. Finally, he argues that health care must include wellness programs that encourage healthy behavior; this may be achieved through efficient use of patient data and changing incentives. Above all, McCallister proposes solutions to mitigate the problem of rising health care costs.

By David Lynch, CPA — Power Group Senior Accountant

Humana has taken an unconventional path to its current state. Originally started as a nursing home operator, later it found itself in the hospital business, and, finally, after bailing out that industry in 1993, it decided to focus on health insurance. McCallister started with the company in 1974, after graduating from Louisiana Tech, specializing in finance. Before becoming CEO in 2000, he spent the interim running various hospitals. Humana recently reentered the health care delivery business through acquisition. As CEO, McCallister understands the continual evolution of his industry and proposes solutions based upon that reality.

During the passage of health care reform, insurance companies were vilified by politicians as earning outsized profits and driving up costs. McCallister does not let this dampen his enthusiasm: “We have a good, higher purpose to what we do, and our people feel that…Some of it comes from a misunderstanding of what we do, and it sets us up to be a pretty good target.” Health care costs, according to McCallister, become the premiums that lead to his company’s profits. “I can show you a historical chart showing that our premiums have tracked health cost increases pretty closely for many, many years.” Aging populations and cutting-edge medical technology are the primary drivers of health care costs, according to the leader.

Humana’s core business, Medicare Advantage, focuses on the individual market. Recently, the company reentered health care delivery through its purchase of Concentra. The purchase includes 200 locations spanning the urgent and primary care areas. Seeking to gain synergy as a provider and payer, the CEO is looking to change the standard model: “We’re beginning to think about the full integration of the relationship and how you can organize the financing and the delivery a little differently, wrap up some new economic ideas…and get to a better place.” Moreover, he believes engaging individuals in wellness, by realigning incentives, is the key to normalizing health care costs.

Exploding health care costs have led to debate as to possible causes and solutions. McCallister argues that “A lot of medical spending is tied to five chronic illnesses [diabetes, stroke, heart disease, pulmonary conditions, and hypertension]. People don’t really connect the dots when they think about why in the world health care costs are going up.” Lack of personal responsibility, he asserts, is a problem that must be addressed: “It takes us into the space of our own health and wellness as individuals. We’re not taking care of ourselves.” Similarly, he believes the current incentive structure is dysfunctional. With the current third-party payment system, the buyer and seller are separated from the payer (i.e., the consumer does not feel his own money is being spent). This, he cautions, distorts the discernment of the consumer. Hence, sub-par services may be tolerated.

How will reform affect the health care industry? McCallister describes the new law as a “mixed bag.” Covering thirty million more people, allowing children to stay on a parent’s plan until age 26, and providing preventative care for free, he believes, are all good ideas; “But all these things cost money, so the bill is loaded up with all sorts of things that set bad incentives.” Fundamentally, he believes the bill does not address the problem of rising costs: “Nothing in this bill has done that. We have a system where we’re insulated from real world cost and quality measures, and we as consumers can’t behave in the way we normally do…” Furthermore, the bill’s mandated policy attributes, he believes, are cause for concern. He laments that private insurers will not have the flexibility to innovate. As a practical matter, McCallister feels that insurance companies will adapt, but must be creative.

Business leaders and economists have debated the bill’s effect on employer-funded health care. He argues that small businesses will send employees to the exchanges for practical economic matters. “All the business people I know have done the math on the future. They’ll have to confront decisions based on the culture of their company and the importance of this benefit to their employees. But I can tell you the pressure and bias will be to drop it.” From his point of view, the current structure of employer-funded health care may be drastically altered once the full effects of the law are implemented.

Humana strives to use patient information intelligently. “Strategic Analytics,” or the use of large amounts of consumer data for strategic ends, has become imperative in today’s environment; however, many companies do not leverage data as well as they would like. Humana is in the process of improving its data mining capabilities. “From our spot as a payer, we have the best view of individuals as they move around health care that exists today…we’re in the middle innings around gathering data and making it actionable.” With increased use of electronic medical records, as boosted by the stimulus bill, the day is coming where all patient data will be aggregated electronically. With electronic medical information readily available to provider and patient, more efficient and cost-effective decisions may be made.

Companies and employees, he argues, should share equal burden in improving health care. “We knew that if we couldn’t effectively work with our associates to get a better handle on their health and their health care spending, then we weren’t going to have much of a value proposition to our customers.” Humana has experimented in all areas of its employee’s health care. All of its employees have the ability and responsibility to voice concerns and provide suggestions. “So if we ask them, ‘Tell us about this,’ we will get a huge percentage of people who will give us feedback. It’s a great laboratory.” Before widely accepted, Humana provided Health Savings Accounts, strove for the elimination of paper, and offered high-deductible plans to its employees. The company and employee were accountable to the process. McCallister’s approach was: “’Listen, I can’t solve this problem for you. You’re going to have to get engaged here. We’re in this together. This is not something that Humana…is just going to take care of forever, because that’s not sustainable.” Based upon results, he believes Humana’s employee population is engaged in its personal health care and wellbeing.

McCallister focuses on three themes. With the third-party payment system, the buyer and seller are separated from the payer. This creates distortions as the buyer does not feel personally responsible for the quality of service. Innovation is key in controlling costs and improving delivery; however, McCallister believes the new health law ties the hands of insurers with new restrictions on policy offerings. In his estimation, this limits innovation and does not address the problem of rising costs. Engaging employees in personal wellbeing is key. Once individuals take responsibility for wellness, the five chronic illnesses will play a smaller role in rising health costs. McCallister summarizes his argument: “This is hard work because it really, fundamentally, requires a change in how people think.”

Source: Fortune Magazine, Volume 163: No. 4, March 21, 2011: The Business of Obamacare by Jeff Colvin.

Power Group Named to Ingram’s “Best Companies to Work For” List

Jack Noble, COO; Bob Nizzi, Pres.; & Mark Avery, CEO

Ingram’s “Best Companies to Work For” recognizes workplaces of the highest quality in the Greater Kansas City area, those whose management practices, educational and advancement opportunities, benefits and spirit of teamwork set them apart from thousands of other companies throughout the region.

Here’s what Ingram’s had to say about Power Group:

Power Group

Insurance consultancy Power Group understands that competitive pay structures, built on industry averages, are mere starting points. It’s important to know what the baseline is for the other guys in the business, but if you want to keep top talent, says Matt Weaver, you need a compensation package attractive enough to do it. And talent is one reason the company has been able to double its revenues within the past three years, and triple its work force since 2006.

Once reeled in by the compensation, “Groupers” also enjoy medical, dental and vision insurance coverage, matching 401(k) plan, flex hours, paid off time to volunteer and, unique to the company, PGIF—Power Group It’s Friday happy hours.

To align the output of a rapidly growing work force, the company’s senior managers start the week with an all-hands huddle at 8:15 every Monday. Wins are celebrated, says Weaver, losses are dissected and new Groupers are introduced. The company has a sophisticated approach to the staff’s professional growth, as demonstrated by one role dedicated position of talent development manager, its use of documented development plans tailored to each associate, and a metric-heavy, uniform performance-management system that rewards output and aligns individual performance with organizational goals and achievement.

And to address workplace issues, the company’s “Best Place to Work” committee works with the leadership on in-house improvements that benefit all.

You can read the rest of Ingram’s “Best Companies to Work For” profiles here.