Health Care Reform: How Companies Need To Worry

Forbs reports:

“Most people have heard the noisy debate about the extent to which the health care reform legislation passed earlier this year will burden businesses. But on the flip side, the reform initiatives also underscore the necessity to re-examine social contracts between employer and employee. At this watershed moment, employers must determine how tomorrow’s health benefits will help them attract and retain talent.

Employers have always played a key role in health in the U.S. as active agents on behalf of their employees. In 2008, 61% of non-elderly Americans had an employment-related health insurance policy; currently, the estimate runs at around 59%. But few companies understand how much they rely on health benefits to attract and retain quality talent. Today 74% of employees consider health benefits a key reason for their loyalty to employers, second only to their salary, according to industry research. On the flip side, most companies underestimate the true economic cost of employee churn. Bain & Company analysis shows that the “turnover tax” on corporate earnings, though invisible in most accounting systems, is larger than current state or federal tax.

Now the Patient Protection and Affordable Care Act offers companies the chance to revisit the connection between health care benefits and employee retention. At its core, the legislation pursues two goals. First, it increases access to health insurance through the expansion of public programs, employer and individual mandates and federal subsidies. Second, it pushes for greater transparency in a more regulated health insurance industry. The government has always used the tax system to encourage employer-provisioned health insurance, but the PPACA adds incentives via mandates, subsidies and transparent purchasing channels. Employers with more than 50 full-time employees must provide coverage or be subject to fines. For smaller businesses, employing fewer than 25, the PPACA promises temporary coverage subsidies for lower-income employees.

Short term the legislation feels onerous to businesses, and for good reason. Most already consider their health costs crippling. By 2015, Bain & Company estimates, employer health costs could rise more than 60% from current levels. That’s almost three times the expected growth in real wages and overall inflation during the same period. A majority of employers, nearly 70% according to industry surveys, expect the reform law to lead to higher health costs, which it undoubtedly will, because of elements like expanded coverage for dependent children, the elimination of pre-existing condition clauses and the enrollment of more than 30 million uninsured. Not surprisingly, even though health reform mandates don’t kick in until 2014, many employers have already begun modifying their health benefits.

In doing so, they face several choices. For instance, health care reform’s second goal of transparency will create an individual marketplace for health insurance. The PPACA will result in the creation of insurance exchanges that offer multiple health benefit options and make the pricing for as well as the profit from a particular benefit more transparent. As a result, while some employers will maintain traditional defined benefit offerings, many will seek alternatives. Our experience tells us to expect more value-based insurance products that emphasize individual employee customization, improved care management and employee wellness. One indicator that this trend is catching is the proliferation of supplemental and specialty insurance products.

Some employers will choose to transfer further responsibility to their employees by shifting to defined-contribution offerings, much as has happened with pensions over the past two decades. Still others will drop out altogether, pay their Federal fines and leave their employees to fend for themselves, with or without subsidies. For many, the push will be toward exchanges where employees can take advantage of more transparent and larger-scale channels that allow them to shop for the best coverage deals.

In determining the right path to take, each employer will weigh several factors. On the quantitative side, they will consider the size and composition of their beneficiary base; its implications for subsidies and fines; and their pre-tax funding for providing health benefits. But opportunities will also emerge on the qualitative front. Employers should dig deeper into the implications of changing benefits and the consequent effect on employee retention, morale and productivity. For example, one trucking company found that its profits increased by 50% when driver turnover reduced by half.

Implications will differ by employer and work force. But the fact remains that American employers face great pressure to evolve their roles in health benefit provision. They can react to rising health care costs by looking for savings, but they can also do so by investing in the health and well-being of their employees. Instead of only sharpening their pencils, employers should be taking stock of the unprecedented economic, competitive and reform-led challenges they face–and turning them to their advantage. It’s time to re-examine our broader social contract with our employees and set a course that is both organizationally and financially responsible.

David Bellaire is a partner with Bain & Company in Atlanta, and Josh Weisbrod is a partner with the firm in New York. Both hold leadership roles in Bain’s Global Healthcare practice. Justin Doshi, a consultant at Bain & Company, contributed to the development of this article.”

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