Sara Singer, MBA ’93, and Jeffrey Pfeffer, PhD ’72, both professors of organizational behavior at Stanford Graduate School of Business, study healthcare policy and human resources. They also serve on Stanford’s Committee for Faculty and Staff Human Resources, which has given them a firsthand view of how large organizations make decisions about employee health plans.

A few years ago, after much discussion, the university changed health insurance providers. Afterwards, Pfeffer recalls, “I said, ‘You know, these people made promises. Is there going to be any follow-up?’ And people looked at me like I was nuts — like, why would you ever do that?”

In a series of new papers, Singer and Pfeffer take a closer look at how employers pick healthcare benefits and whether they follow-up they to see if these often enormous expenditures meet their employees’ needs. Based on their previous research and their own experiences, Singer and Pfeffer expected that their findings would be discouraging. “But we didn’t realize it would be this bad,” says Singer, who is also a professor of health policy at Stanford Medical School. “The absence of agency was striking,” Pfeffer agrees.

Their findings are based on a survey sent to a representative sample of U.S. organizations with more than 50 employees. It asked the companies how they chose health insurance plans, assessed the value and performance of those plans, tried to reduce costs and improve value for employees, and whether they ever asked employees for feedback. Around 225 companies responded.

Since then, Pfeffer and Singer have been sifting through the data and parsing it in a series of papers. The first two, published earlier this year, examine how much employers emphasize financial considerations versus member experiences when making these decisions and how much measurement and management oversight accountability they provide. A forthcoming article, co-authored with law professors Barak Richman of George Washington Law and Amy Monahan of the University of Minnesota Law School, analyzes how well companies meet their fiduciary obligations under the Employee Retirement Income Security Act (ERISA) when managing employee benefits. The answer: for the most part, not very well.

An Unhealthy Relationship

Although 58% of Americans rely on employer-sponsored health insurance, American corporations are doing surprisingly little to improve healthcare options for their employees and adequately keep track of this significant expense. And the little they are doing may be insufficient under the current law.

More than two-thirds of the companies in Singer and Pfeffer’s survey reported using benefits consulting firms to choose plans. Advised by these consultants, employers emphasized financial considerations, like the cost of administration, over nonfinancials like how much time employees had to spend getting their questions answered or whether they might delay getting care because it was too expensive. More than a third of the companies didn’t bother to request quotes from multiple insurers or do price comparisons.

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When you talk to people who are overseeing all this, there’s a sense that nothing can be changed, that this is an impossible problem.

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— Jeffrey Pfeffer

There was also a surprising lack of accountability. There’s a principle in management, especially in the quality movement, Pfeffer explains: You can’t manage what you don’t measure. More than a third of the companies surveyed never requested any feedback from employees about their experiences with their health plans. (This was corroborated by a representative from a consulting firm who told Singer and Pfeffer that after benefits contracts were signed, few employers asked the firm to make sure the administrators were making good on their promises.) On average, nearly two-thirds of performance metrics listed in the survey went unmeasured. The most measured — and managed — metric was how much health benefits cost the employer. The effect on employees was secondary, if it was assessed at all.

This absence of measurement and management of health benefits, Singer and Pfeffer argue, helps explain why the cost of employer-sponsored health insurance is rising significantly faster than inflation. It also puts companies at risk for lawsuits for failing to be prudent fiduciaries under ERISA, which legally requires them to act solely in the interest of healthcare plan participants and beneficiaries, not their convenience or bottom line.

As Pfeffer has found in previous research, healthier employees are happier employees. They’re more productive. They’re less likely to call in sick and more likely to stay with the company. Clearly, it’s in a company’s best interests to look after its employees’ healthcare. So why do so many companies seem not to care?

“Peremptory Surrender”

There are a number of reasons, Singer says. A major one is that the insurance industry has been consolidated into a few big groups offering thousands of plans. The process of contracting for health insurance is difficult to navigate, and the contracts themselves offer little transparency. Companies are busy with other things, like building, selling, and offering services: their main reasons for existing. And so HR departments delegate the responsibility of choosing plans to third-party intermediaries. And those intermediaries, as Singer puts it, “contract in ways that enable them to keep a lot of the money for themselves.”

All this makes corporate executives and HR managers feel hopeless. “When you talk to people who are overseeing all this,” Pfeffer says, “there’s a sense that nothing can be changed, that this is an impossible problem. And no one has ever made a career in organizations by attacking a problem that they deem to be impossible. So basically, there’s a sense of almost peremptory surrender. It’s like the sun is going to rise in the east tomorrow, but there’s nothing you can do about it.”

Pfeffer, Singer, and Barak Richman, their GW Law colleague, have recently embarked on a set of case studies to ascertain why some employers are more proactive and why some have made progress in improving health benefit delivery while so many others have failed.

A new paper, currently under review, shows that size, industry, and other demographic factors don’t affect which employers do a better job overseeing health benefits. Instead, it’s corporate behavior. At the more effective companies, HR departments ask employees about their experiences and attempt to build a culture of health. In other words, these employers demonstrate that they care.

This suggests to Singer and Pfeffer that companies aren’t completely powerless to measure, manage, and improve their employees’ healthcare options. “It requires caring and a strategic focus on health,” Singer says. “It’s as simple as that.”