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U.S. Employers: 'We'll Pass Along Health Reform's Added Costs'
Sidebar: Advocates and opponents differ on how reform would affect employer-provided coverage

By Stephen Miller  9/23/2009

U.S. employers say they will not absorb any additional costs that result from health care reform and plan to reduce benefits, raise prices for customers and cut head count to accomplish this financial goal, according to a survey of HR and benefit executives from mid-size and large U.S. organizations conducted by professional services firm Towers Perrin. The firm's Health Care Reform Pulse Survey report, released in September 2009, analyzed responses collected two months prior.

“The way employers would respond to reform proposals that raise or lower their costs is one of our most telling findings—one that could conceivably impact economic recovery,” says Dave Guilmette, managing director of the Towers Perrin health and welfare practice. “With companies struggling to manage rapidly escalating health care costs and reclaim profits, only 11 percent of companies would agree to absorb increased health care costs by reducing their profits. The overwhelming majority of companies would respond to higher costs by reducing the benefits their employees receive.”

Although not as outspoken in the reform process as many stakeholders in the health care industry, employers are watching Washington closely, Towers Perrin found, with 80 percent monitoring developments. Nearly one in four surveyed companies (23 percent) are rethinking benefit changes in light of possible reforms, and nearly all (89 percent) plan to re-examine their health benefit strategies for active employees in response to the passage of any health care reform legislation.

U.S. Employer Actions If Health Care Reform Increases Employer Costs
(% responding very likely or likely)

Reduce benefits

87%

Increase prices for customers

38%

Reduce employment

30%

Reduce salaries/direct compensation

27%

Accept reduced profits

11%

Other

6%

Source: Towers Perrin’s Health Care Reform Pulse Survey, September 2009.

Cost Concerns Are Paramount

While talent management considerations such as productivity, workforce health, and recruiting and retention remain important even in a tough economy, cost issues will dominate employers’ decision-making in a post-reform world, according to the survey.

“With employer health care costs rising more than 150 percent over the last decade, it’s no surprise that 90 percent of employers list cost containment as the most important health care reform goal,” says Guilmette. “Many large employers, however, feel that current reform proposals are focused on other health care issues— such as expanding coverage and reforming certain insurance practices—and they feel they have already addressed these issues within their own workforces.”

Commenting on the health reform bill proposed in September 2009 by the Senate Finance Committee, the American Benefits Council, a national trade association, issued a statement expressing its concerns with "certain key aspects of this measure" that it claimed are "likely to eventually be paid by employers and employees." Similarly the HR Policy Association, representing senior HR executives from large U.S. employers, stated that the measure contains provisions that "would significantly raise the cost of employer-provided health care." Health reform advocates, however, see reform as potentially lowering employer costs by fostering competition between private insurers and nonprofit regional health care exchanges (as under the Senate Finance Committee bill) or with a government provided "public option" (as favored by many House Democrats). They say initiatives such as promoting the use of comparative-effectiveness research will ultimately drive down costs.

In addition, employers do not expect that reform will address some of the fundamental drivers of health care costs, Towers Perrin found. For example, nearly two-thirds of employers (65 percent) believe that health care reform will have little or no impact on consumer behaviors, an area that many leading employers have begun to target as one of their key cost-containment opportunities. And nearly half (47 percent) of survey respondents say that an employer “pay or play” mandate would hurt businesses.

Nevertheless, regarding health care proposals on the table, 53 percent of employers believe that research on effectiveness of alternative treatments will have a positive impact on their business by influencing the quality of care over time, and 44 percent believe that reforming the health insurance market to ensure guaranteed access to coverage regardless of health status will have a positive impact.

Retaining Wellness Programs

Despite the sharp focus on costs, survey respondents express strong positive views on the importance of workforce health to business success, the role of health benefits in the rewards portfolio, and the opportunities benefit programs provide in influencing workforce health. Notably, a majority (61 percent) say they would stand by their commitments to employee wellness and health promotion programs even if they no longer offered medical benefits directly (under the “pay” option of a pay-or-play mandate, for example).

“For many companies and in certain industries, health benefits are viewed as critical to the total rewards package,” says Ron Fontanetta, Towers Perrin principal. “These programs provide important levers in managing talent and supporting other key business objectives.”

Pay or Play?

Employers expect they would respond to a pay-or-play mandate in the following ways:

Provide company-sponsored health coverage that substantially exceeds the standard (37 percent).

Discontinue company-sponsored health coverage and pay the assessment if the per-employee costs of payments to the federal government were substantially lower than their current costs (29 percent).

Provide company-sponsored health coverage at the minimum standard level required (26 percent).

“In some industries, particularly those with low margins and lower-income/high-turnover employee populations, some companies would, under a mandate, choose to write a check to the government and allow employees to purchase coverage in a reformed market for individual health insurance,” notes Fontanetta. “For example, fully 42 percent of retail companies in the survey said they would close their plans and pay a federal assessment vs. 28 percent of those in financial services and 24 percent of those in technology/telecommunications.”

“As the process continues to unfold and specific elements are known, employers will want to model the financial and employee relations impact on their specific organizations,” adds Guilmette.

Higher or Lower?

A vast majority of U.S. employers anticipate that, if enacted, Congress's prescription for health care reform will lead to higher health care costs and weaken employers' role in providing coverage to workers, according to a poll by consultancy Watson Wyatt. Conducted in mid-September 2009, the poll found that:

73 percent of U.S. employers believe health care costs will increase if health care reform legislation is passed.

• 86 percent think the proposals being considered would weaken the role employer-sponsored plans play in providing health care coverage.

Commenting on the health reform bill proposed in September 2009 by the Senate Finance Committee, the American Benefits Council, a national trade association, issued a statement expressing its concerns with "certain key aspects of this measure, such as the complicated and costly excise tax, other fees on health insurers and other stakeholders and the tax on valuable prescription drug coverage for retirees," that it said were "likely to eventually be paid by employers and employees and would therefore make health care less affordable." Similarly the HR Policy Association, representing senior HR executives from large U.S. employers, expressed its view that the measure contains provisions such as expanded coverage mandates that "would significantly raise the cost of employer-provided health care."

Advocates who support the congressional proposals, however, see them as potentially lowering employer costs by fostering competition between private insurers and nonprofit regional health care exchanges (as under the Senate Finance Committee bill) or with a government-run "public option" (as favored by many House Democrats). They claim initiatives such as promoting the use of comparative-effectiveness research will ultimately drive down costs.

Stephen Miller is an online editor/manager for SHRM.

Related ArticlesSHRM Online:

Obama Health Plan Would Force Employers to Pay for Coverage, HR News, September 2009

Viewpoint: Large Employers Group Reacts to Senate Health Care Reform Proposal, SHRM Online Benefits Discipline, September 2009

Viewpoint: Health Care Reform—A Threat to Employer Health Plans?, SHRM Online Benefits Discipline, September 2009

Viewpoint: HR's Health Care Hurdles—A First Person Account, SHRM Online Benefits Discipline, September 2009

Related ArticlesExternal: 

Mandate Minus Price Controls May Increase Healthcare Costs, Los Angeles Times, September 2009

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