Although companies’ own costs continue to rise, the burden on workers has reached a point where health benefits are losing some of their effectiveness as a hiring and retention tool.
How serious the issue is depends to a large extent how well a company’s work force is paid. Michael Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions, noted that during his former tenure as a consultant at PricewaterhouseCoopers, the firm didn’t have to worry about it because the employees could well afford their premium costs and deductibles.
“But the reality is that the average American has only $400 in the bank,” Thompson continued, “while health-plan deductibles are over $1,000. The result is that lower-income workers defer care — and often, it’s necessary care. So they end up in the emergency room, which costs more than it would have cost if they’d taken care of themselves. They get in financial distress, they let their charge cards grow, they borrow from their 401(k).
“I think we have to get sensible and think about this in the context of all our employees, not just the highly paid ones,” he continued. “People are not ready to absorb costs that are growing [faster] than their compensation.”
He said finance chiefs should challenge their benefits and human resources leaders — not just on reducing costs, but also on whether employees can really afford the health plans they’re offered.
Engagement by CFOs also can drive a company toward smart alternative strategies such as differentiating among health care providers, Thompson recommended. Finance chiefs, he said, should insist that those populating the company’s network “be more efficient, provide a better service relationship, and deliver an overall less costly package.”
Of course, changes in the roster of providers in the network can be traumatic for some employees. “It doesn’t feel good when a doctor who an employee had seen for 20 years and thought was good quality suddenly falls out of the network,” noted Ellen Kelsay, chief strategy officer for the National Business Group on Health.
But too often, she said, objections can derail network changes when, for example, they come from the CEO — or the CEO’s spouse. That makes no sense, because that’s someone who could easily afford to go out of network for care.
Kelsay recommended that CFOs be involved in negotiations for value-based care arrangements, where a health system or physician group takes on risk by agreeing to be paid at least partly on the basis of health outcomes rather than the traditional fee-for-service model.
“It’s a financial negotiation, and you need a very acute financial orientation as well as a good data orientation,” she said. “A CFO who has partnered with their HR team, is at the table having these conversations, and is assessing the data, the measurements, and the risk-reward factors — all of that is hugely important when you’re in a negotiation with the big health system in town or a behemoth insurance company.”
Thompson suggested that CFOs of fully insured companies do some research on the question of whether to become self-funded.
“There may be some rare circumstances where you want to be insured, but generally, being self-insured, down to a fairly small-size company, is in your best interest.”
That flies in the face of generally accepted wisdom, which is that a small number of excessively high claims can ruin a smaller self-funded company.
But, Thompson said, “insurance is a misnomer. Your premiums chase your claims. If you have more claims, you get more premium. Yes, there might be a year delay before you get it, but it’s not like you can escape the dragon by being insured. The dragon is out there either way. There’s a weakness [with respect to] those big claims, but the same weakness is in the insured market.”