Bigger than benefits: Employers rethink their role in healthcare

Healthcare and employers—inseparable? Maybe not. With the Supreme Court ruling to uphold the Affordable Care Act (ACA) and the president’s re-election, employers have never had a better opportunity to re-examine their long term role in providing healthcare coverage. The year 2013 will likely be the turning point for the evolution of healthcare benefits over the next decade.

For almost 70 years, employer-based coverage has been a cornerstone of US healthcare. A result of wage-price controls dating back to World War II and favorable tax treatment ever since, healthcare benefits are a core component to attracting and retaining talent. But once seen as a tax-efficient way to reward employees, healthcare costs are now infringing on many corporations’ efforts to compete globally.

Healthcare costs now rank second or third to wage costs. The median employer share of payroll going toward health insurance costs was 12.8% in 2010, up from 8.2% in 1999.¹ Many employers are concerned about the financial impact of new mandates, taxes (including the 40% “Cadillac” excise tax on high cost plans starting in 2018), and administrative challenges brought forth by the ACA. And, with healthcare entitlements center stage in the ongoing budget debates at both the state and federal levels, employers are concerned that cost-shifting from these programs will only accelerate in the future.

Until now, an individual insurance market seen by many as dysfunctional has left employers no choice but to continue offering coverage, even with the rising cost. But a number of provisions of the ACA, such as guaranteed coverage, elimination of pre-existing condition exclusions, and government subsidies for the poor and many in the middle class, have strengthened access and affordability for those without employer-based coverage. Now employers are beginning to consider the new state exchanges as a potential safety net for employees or retirees and are looking at private exchanges as alternatives to the status quo.

In 2013, corporate leaders will embark on “pay or play” financial analyses and many will ask tough questions such as why they focus so many resources on something that is not core to the business. Some employers may decide to transition out of healthcare altogether: a recent third-party survey found that only 23% of employers are very confident that their organization will offer healthcare benefits a decade from now, compared with 73% in 2007.² Others will elect to move toward a defined contribution approach, similar to 401(k) retirement plans, with the exchanges. Still others will double down on their efforts, both individually and collectively, to bend the cost curve through consumer-driven healthcare, wellness programs, and new efforts related to delivery and payment reforms. However, this will not be easy. PwC’s Health Research Institute’s consumer survey found that only 21% of consumers have changed their behavior as a result of their employer changing benefit offerings or wellness programs.³

Implications

• Employers must determine their future role in healthcare and develop a transition strategy to support it, whether they transition out, move to private exchanges with defined contributions, or change their practices for covering certain classes.
• Insurers and providers should anticipate a changing insurance marketplace where employers increasingly participate in and defer to organized health insurance marketplaces, such as public and private exchanges.
• New delivery systems (e.g., accountable care organizations) should engage leading employers and employer coalitions to become partners to deliver improved value and enhance employee population health and productivity.
• Employers should stay in close communication with policy makers as they make technical corrections to the ACA, including the healthcare benefits tax exclusion, and tackle ongoing issues with the federal budget.