Pretend, for a moment, that you know nothing about managing benefits; better yet, forget anything you've ever learned about benefits management. Chances are, it's not going to help find a solution to manage your growing health care costs.

In the case of health care cost management, it will take a paradigm shift, a radical rethinking of management procedures, to be able to identify a solution. If we continue to focus the majority of our energy on identifying short-term fixes, such as shifting cost to employees, then we're missing a tremendous opportunity to improve. Strategic health care cost management is a long-term approach with a planning horizon of at least three-to-five years.

However, the potential for significant short-term, in addition to long-term, savings is great. As with every good plan, your strategic health care cost management plan will identify how to get from point A to point B. The best way to take the first step is to be goal-oriented.

Define the future state before hatching a massive action plan, or you may never create that desired outcome. There are certainly some limitations on what can be achieved over a three-to-five year period.

Some companies have achieved a cost avoidance of 6% to 10% per year. Larger companies could effectively freeze increases in health care cost for the entire three- to five-year planning period. Smaller self-insured companies that are by nature more dynamic stand to gain just as much.

Over a five-year period, you would be able to save your company anywhere from 30% to 50% in health care. What's more, the compounding effect of cost avoidance is similar to the compounding effect of interest - interest on top of interest accelerates the accumulation of wealth.

Understand your cost drivers

The first driver of health care costs is the health of your insured population. We all know that preventive care represents a nominal portion of the overall health care bill. What most of us don't know, or fail to realize, is that the behavior and the daily lifestyle choices of the insured population impacts over three-quarters of each dollar spent.

A couple years ago, I attended a conference at which the keynote speaker, a futurist, presented evidence that even the aging process is actually a disease state promoted by the exposure to the environment mankind has created and the lifestyle choices we are making. I found this to be an intriguing perspective that eventually might lead to a radical restructuring of how we see health and our role in promoting or sustaining it. Each and every individual has a significant influence over his or her personal well-being.

The second cost driver that companies have direct influence over is the third-party-payer system that isolates employees from the cost of medical care. The late Nobel Prize winner Milton Friedman stated over two decades ago that "nobody spends somebody else's money as carefully as he spends his own. Nobody uses somebody else's resources as carefully as he uses his own. So, if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property."

Simply put, we will not be able to achieve the active engagement of the medical consumer until we implement an approach that directly exposes individuals to the cost of health care.

Consumer-driven health plans try to overcome the disadvantages of the third-party-payer system but, as with wellness programs, I don't believe that they are a good stand-alone solution and will fail to deliver in the long-term.

To attack the problem from another angle, consider combining a high-deductible health plan with a health promotion program that allows individuals to offset out-of-pocket expenses with outcome-based incentives.

The hard part is finding the correct combination of changes in benefits design, health promotion and incentives that would need to occur over the next three-to-five years in order to create an environment in which your insured population is functionally assuming responsibility for its own health and well-being. When creating your own strategic health care cost management plan, consider the words of General George S. Patton: "A good plan executed today is better than a perfect plan executed at some indefinite point in the future."

Concurrently, take some advice from racing legend Mario Andretti: "If everything appears to be under control, you are not going fast enough." Begin today; tomorrow may be too late.

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