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For many employers, a health care strategy means one thing: Managing and containing health benefit costs. Yet it can, and should, be so much more. “Health care strategy should be a piece of the organization's overall total rewards strategy,” said Gary Kushner, SPHR, president and CEO of consulting firm Kushner & Co. in Portage, Mich. Yet given so many uncertainties, by necessity “health care strategy is more of a process at this stage than a set of preconceived conclusions,” he observed.
Enter Health Care Reform
Since the Patient Protection and Affordable Care Act was signed into law in March 2010, health care strategizing has taken on new dimensions. This will be particularly true as employers get closer to 2014 when the state health insurance exchanges are scheduled to be up and running and employers will face a range of possible excise taxes and penalties based on what level of health care benefits they provide. That is the point at which employers must decide whether to continue offering health benefits at all—the so-called pay-or-play decision.
For some companies, health care strategy has already moved from focusing on cost containment to articulating how health benefits fit into the organization’s long-term plan. But with so many unknowns and variables involved in health care reform, including pending regulations and the likelihood of a future Congress amending the law, that's easier said than done. “We need to know where we are going and that is very difficult under current circumstances,” said Michael Murphy, SPHR, director, compensation and benefits for Shoe Carnival Inc. in Evansville, Ind., and a member of SHRM's Total Rewards/Benefits and Compensation Special Expertise panel. “We know a bit about what to expect in 2014 and 2018 but we don't know all the details and how they will affect the organization.”
Because health care strategy has such important implications for companies and the implementation of health reform requirements is so fluid, it is important to conduct regular reviews and discussions about the implications new developments auger for the health care strategy. A comprehensive strategy that is reviewed and updated regularly can help employers deal with some of that uncertainty and make smart decisions as the situation evolves. For example, although some employers might look at the pay-or-play benefits decision from a purely financial standpoint, a strategy can highlight the many other factors that come into play and help to guide that decision-making.
--------------------------------------------------------------------A strategy that's reviewed and updated regularlycan help employers make smart decisionsas a complex situation evolves.--------------------------------------------------------------------
To Grandfather or Not
One example of the growing importance of putting in place a strategy—or, better yet, an ongoing strategic review process—involves decisions over the health plan's "grandfathered" status.
Under the grandfather provision of the health care reform law and the Obama administration's
final interim regulations issued in June 2010,
companies can maintain many of their current health care coverage provisions if they do not change insurance carriers, reduce benefits or raise co-payment charges or deductibles significantly.
However, many companies have yet to consider the issues around grandfather status.
"Whether we consciously choose to attempt to maintain grandfather status or not is very much an individual organizational strategic decision based on sound modeling," said Murphy. However, "to ignore the issue is just not acceptable."
Pay or Play: Beyond the Obvious
Similarly, employers that don't have a strategy in place may be lulled into thinking they can drop health care coverage in 2014, pay only the required penalty and leave it at that. These employers could be in for a rude awakening. The decision to end health care benefits may save money initially but it has tremendous ramifications in other areas.
For instance, decisions made about health care benefits will have a profound impact on an organization’s talent acquisition strategy, employee retention strategy, organizational culture, and its competitiveness as an employer.
"If an employer's role in medical coverage eventually were to go away, and if we see that many employees regard health care benefits as their number one reason for working for us, then what?," Murphy observed. "We need to think about this."
Forward-looking companies "are looking at cost scenarios to discern whether to keep providing health care coverage or pay the penalties and drop it, and conducting cost/benefit analyses to help them plan for these decisions," added
SHRM Total Rewards panel member Bob Cartwright, president and CEO of Intelligent Compensation LLC, an HR management consulting firm in the Austin, Texas area. Given the impact of such decisions on recruitment and retention, "Changing compensation and benefits to adjust to new health care cost and administrative issues should be part of any business strategy," he advised.
Drop Health Care?Does it make sense for employers to eliminate health care benefits? That will depend on a company’s business model and strategies for rewards and retention, argues Gary Kushner, CEO of Kushner & Co.View this video
As the pay-or-play decision gets closer, employers may want to change their health care benefits design by making benefits less rich in order to keep their total value under the threshold for the excise tax. This would essentially be removing some of the financial subsidy out of benefits. “One potential scenario is that employers will invest that money in another element of rewards that generates an equal or greater return in terms of employee engagement and retention,” said Julie Stone, a senior consultant with Towers Watson in Parsippany, N.J. “Where those investments are made will depend on the particular employer and their unique circumstances or business.”
Compensating with Higher Pay
In addition, "if an employer eliminates benefits and employees must purchase those benefits in the open market, employees are likely to expect some level of monetary compensation to make up the difference," Kushner noted. In other words, the initial assumptions of financial savings may not hold up when employers consider the overall picture.
Doing the MathEliminating health care is not a simple decision, says Gary Kushner, CEO of Kushner & Co. To prove his point, he walks viewers through a scenario that presents potentially unanticipated costs for employers.View this video
Productivity and Presenteeism
“For 90 to 95 percent of employers, the pay-or-play decision involves a complex calculus,” added Kushner. “What if offering health benefits is less expensive than the alternative” once you factor in employee attraction and retention, absenteeism, productivity and presenteeism?
“We look at wellness from a claims cost perspective but also from a productivity perspective,” said Linda Lulli, SPHR, associate vice president for human resources at Bryant University in Smithfield, R.I. “That helps us to focus on priorities for this year and the next couple of years.” The strategy sets out guidelines to measure the performance and effectiveness of all health and wellness initiatives.
Employers that want to develop or update a health care strategy can do so by involving a range of constituencies. This not only ensures that all areas of operations are represented but it can help others in the company to understand what is happening with health care reform and what is at stake. As new regulations come out, Murphy suggested using health care strategy and the discussions surrounding it as a way to keep senior management informed about how those regulations might affect the company.
The good news is that senior management interest in health benefits decision-making has never been higher. “Health care reform is the pivotal event for employers and a fundamental game changer to their health care benefits,” said Towers Watson's Stone. “We are seeing a movement toward a multifaceted approach that includes stakeholders outside of benefits who might not have been involved in strategy development in the past.”
By modeling scenarios using both claims data and the additional administrative costs and effort required to comply with complex requirements, HR and benefits executives can provide quantifiable results to senior management and solicit their insight into how these results should affect the overall health care strategy. Even if not offering health care benefits is an unlikely choice, those questions should still be addressed.
Likely Company ActionsThe percentage of U.S. private company CEOs who said the following actions were likely as a result of health care reform:
Re-evaluate your overall benefits strategy.
Change your company’s benefits to comply with the health care reform law.
Significantly change employee contributions for medical coverage.
Significantly change retiree medical benefits (asked of the 11% of respondents who currently provide retiree health care).
Increase your company’s investments in wellness programs.
Cover employees through state-run health insurance exchanges (available in 2014 for small employers, and in 2017 for large ones).
Set up or significantly change retiree medical benefits (asked of all respondents, whether or not they provide retire health care).
Source: PricewaterhouseCoopers release, "Nearly half of private company CEOs believe health care reform may have a notable financial impact on their business." Survey conducted in the latter half of 2010.
is a New Jersey-based business and financial writer.
Her articles have appeared in a number of publications, including HR Magazine,
Business Finance, Consulting, Compliance Week
and Treasury & Risk Management.
Taxing Changes Under Health Care, HR Magazine, October 2010
U.S. Agencies Clarify Restrictions on “Grandfathered” Health Plans,
HR News, June 2010
SHRM Online Health Care Reform web page
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