Human Capital & Careers

What Will Companies Do?

As health-care reform starts and stops, CFOs face difficult decisions about where to invest now.
Alix StuartFebruary 1, 2010

As health-care reform moves forward, many CFOs face a dilemma: should they continue to invest in programs that might rein in costs over the long term, or stop providing insurance altogether, given the disincentives contained in current versions of the legislation?

At press time, at least two elements of the House and Senate bills seemed likely to change the way employers deliver health care to employees: a 40% tax on higher-priced plans, and an opt-out penalty (approximately $750 per employee) that would cost far less than insurance. The Senate version would also place a number of new reporting and compliance burdens on companies that provide insurance.

As a result, some employers are rethinking their approach entirely. “There’s no incentive for someone with a plan such as ours to keep it,” says Frank Santos, CFO of Rosen Hotels and Resorts. The company has provided on-site employee medical care for nearly 20 years, along with a host of related offerings. “We currently spend about $2,700 per associate, but the government is going to allow us to forgo that plan and pay $750 per associate,” Santos says.

Indeed, “a number of midsize employers are thinking they will drop coverage because it will be more economical, given the penalties, and the employees would still receive coverage,” says Dean Hatfield, senior vice president and health-practice leader at Sibson Consulting.

Increasingly, companies are beginning to draw a distinction between insurance coverage and evolving efforts to help employees maintain good health. Santos, for one, says that Rosen may keep its on-site clinic open — at a cost of $2 million per year. And according to a recent survey of large employers, only 2% see health-care reform dampening their interest in programs such as on-site clinics, nurse lines, and disease-management programs.

“Health-care reform may be an annoyance, in terms of compliance, but it’s probably not going to change our efforts to provide a healthy workplace,” says Delia Vetter, senior director of benefits and programs for data-storage company EMC. She says EMC will offer insurance regardless of final legislation, and will expand programs like electronic personal-health records, nutritional counseling, and remote monitoring for employees with chronic illnesses.

Pretzel maker Snyder’s of Hanover has kept its health costs flat for five years, thanks in part to efforts to steer employees toward annual physicals, health fairs, and Internet-based second opinions. Even if the company ultimately decides to drop coverage, “it would still be worthwhile to have a wellness program because of the productivity savings,” says Penny Opalka, manager of benefits and compensation.

“Providing health-care benefits is a critical competitive factor today,” says Helen Darling, president of the National Business Group on Health. “But if the industry dynamics change, companies will certainly be open to making changes.”

What’s Your Prognosis?

How is health-care reform legislation most likely to affect your company’s health-care plan?

46% — No change. Health-care coverage is an important retention tool.

24% — We will decrease the coverage we offer to avoid extra taxes.

20% — We will drop health-care plans and pay the per-employee penalty so that employees can participate in the government plan.

11% — We will stop offering health-care plans, but give employees a cash subsidy to purchase their own plans.