The fact that the Patient Protection and Affordable Care Act provides health-care coverage to 30 million uninsured Americans is undeniably a good thing, agreed three experts during a panel discussion at the CFO Core Concerns conference in Baltimore on Monday. But the law comes at a price, they noted. Indeed, to pay for the cost of reform, panelist Thomas Mangan, CEO of Corporate Synergies Group, a health-care insurance broker, predicted there will be “a tax increase on everyone in this room, and every one of your employees by 2018.”
One major reason for coming health-care cost increases is a timing disconnect between when insurance companies must start covering people with preexisting conditions and eliminating coverage caps (which will increase insurers’ costs) and when individuals will be required to buy insurance (a boon for insurers). The disconnect means that in the interim, insurers are likely to pass premium increases on to corporate customers.
A big concern among corporate executives is the excise tax slated to take effect in 2018 — specifically, a 40% tax on annual premiums exceeding $10,200 for individuals or $27,500 for families. According to data from consultancy Towers Watson, more than 60% of large employers will hit those thresholds by 2018, assuming an 8% annual increase in health-care costs. There is also a significant administrative burden related to complying with the new law, which sets out various coverage thresholds and allowable cost-to-income ratios. For example, the “free rider” penalty imposes a fine on companies that make employees pay more than 9.5% of their income toward health care.
“At a fundamental level, you have to be creative” to cope with rising health-care costs, declared panelist Jeff Carter, CEO of Patients Without Borders, which works with companies to give employees a choice of overseas medical care. “Building in a 15% to 30% trend increase into your cost estimates is not very creative, and neither is asking your employees to pony up extra money to keep doing the same thing,” he said.
“There is a lot of opportunity for innovation” to keep health-care costs down, said the third panelist, Richard Grossi, CFO of Johns Hopkins Medicine, the teaching and research hospital affiliated with Johns Hopkins University. All three panelists urged businesses to start curbing costs now by implementing a mix of incentives, creative planning, and preventive care.
One practical innovation companies may want to consider is the return of work-site clinics staffed by company doctors or nurse practitioners, said the panelists. Having a primary-care physician at the work site usually encourages employees to seek care before conditions worsen and treatment costs and work absences rise. Smaller businesses that own or lease space in a large building may want to set up a shared clinic with the other tenants, suggested Grossi.
Similarly, Grossi said the best way to lower workers’-compensation costs is to put in place incentives that prompt employees to visit a doctor quickly before a condition or injury becomes more serious and workers are forced to seek long-term payments “on the indemnity side of the service.”
Grossi is also working to eliminate readmissions to hospitals of workers who have been recently released. “The severity of readmission is sometimes worse than the original diagnosis,” observed Grossi, who said he is considering beefing up his company’s benefits package to include five days of home nursing care for employees who are discharged after longer hospital stays.
Carter predicted that corporations will offer employees more incentives to stay fit or choose lower-cost care options. For example, some companies are offering a $5,000 bonus to workers who agree to seek care in cheaper, U.S.-certified overseas hospitals. “That’s something that must be incentivized,” he said. Employees “are not going to get on a plane and go overseas for surgery unless you make it worth their while.” Carter said the savings to corporations are significant enough to warrant the bonus.
In the same vein, some companies offer lower co-payments if workers choose a less-expensive generic drug or an over-the-counter remedy when it’s appropriate, said Mangan.
The panel pointed out that under the new law, companies can grab some incentives, too. For example, there is $200 million worth of wellness grants available to small companies (fewer than 100 employees) that put in place company-sponsored health-related programs. In addition, the reward payments that companies currently offer to workers who participate in wellness programs will increase to 30% of the insurance premium in 2014, up from the existing 20% limit, noted Mangan. The incentive could potentially rise to 50% if the Secretary of Health and Human Services gives the green light in four years.
Health-insurance exchanges where uninsured individuals and employees of small companies can buy coverage are also on the horizon. But regulations for the operation of the exchanges have not been written yet, so it’s uncertain how they would work. Carter said some companies may follow the early-adoption route and jump into the exchanges as soon as they are in place, in order to lower costs and gain experience. Mangan agreed, saying he expects many small businesses will “punt” on high-deductible plans, pay the tax penalty for not insuring workers, and then send workers to exchanges to buy coverage.
Although employee health data, as well as information on doctor and hospital care, will be key to sizing up the risk inherent in a corporate population, an information gap still exists, said Mangan. “I can get more data on buying a Honda Accord than I can on the doctor that I’m going to visit,” he quipped, adding that a cottage industry of health-care information providers is already starting to emerge.
Indeed, as is the case with most corporate issues, information is king, the panelists agreed. “If you don’t have data about your own population, you could make some pretty serious mistakes,” warned Grossi.
This article was reported from the floor of the CFO Core Concerns conference. For more information on upcoming conferences, click here.