As Cost Tops Health Care Concerns, Employers Reject Higher Expenditure for Reform

Many of the nation's employers are focused on the health care reform deliberations in Congress and plan to adjust their benefit strategies based on how the final legislation affects their costs, according to a pulse survey of 433 HR and benefit executives from midsize and large organizations conducted by Towers Perrin.

Employers say they will not absorb any additional costs resulting from reform and that they plan to take action to avoid doing so. Proposed cost-cutting strategies include:

• reducing benefits
• raising prices for customers
• reducing head count.

Although not as outspoken as many stakeholders in the health care industry, 80% of employers are closely monitoring health care reform developments in Washington, and in response:

• 23% are currently rethinking benefit changes in light of possible reforms.
• 89% are planning to reexamine their health benefit strategies for active employees.

While talent management considerations such as productivity, workforce health, and recruiting and retention remain important even in a tough economy, post-reform cost issues will dominate employer decision making, according to the survey. 

Employer health care costs have risen more than 150% over the last decade, so it's no surprise that 90% of HR and benefit executives list cost containment as the most important health care reform goal. In addition, employers worry that currently proposed reforms won’t address some of the fundamental drivers of health care costs. For example, nearly two-thirds of employers (65%) believe that health care reform will have little or no impact on consumer behavior, an area many leading employers are targeting as a key to cost containment.

Nevertheless, looking at health care proposals currently on the table:

• 53% of employers believe that research on the effectiveness of alternative treatments will have a positive impact by influencing the quality of care.
• 44% believe that reforming the health insurance market to ensure guaranteed access to coverage, regardless of health status, will have a positive impact.

And looking further into the possibility of positive outcomes from heath care reform, 78% of employers report that they would retain any reform-generated health benefit savings within their companies.

However, nearly half of employers (47%) think a "pay or play" mandate would have a negative impact on their business. With companies struggling to manage rapidly escalating health care costs and reclaim profits, only 11% of companies would agree to absorb increased health care costs by reducing their profits. The overwhelming majority of companies said they would respond to higher costs by reducing the benefits their employees receive. 

Despite the sharp focus on costs, survey respondents expressed strong positive views on the importance of workforce health to business success, the role of health benefits in the reward portfolio and the opportunities benefit programs provide in influencing workforce health. Notably, a majority (61%) say they would stand by their commitment to employee wellness and health promotion programs, even if they no longer offered medical benefits under the "pay" option of a pay-or-play mandate, for example.

Towers Perrin's survey also examined the experience of employers based in Massachusetts, where a pay-or-play mandate on employers and a coverage mandate on individuals similar to those currently proposed in Congress have been imposed. Among those employers, most respondents have seen little or no change in employee or employer health care costs or access to quality care, although more than two-thirds report that their administrative burdens have increased.

Employers expect to respond to a pay-or-play mandate in the following ways:

• 37% would provide company-sponsored health coverage that substantially exceeds the standard.
• 29% of all employers would discontinue company-sponsored health coverage and pay the assessment — if the per-employee cost were substantially lower.
• 26% of employers would provide company-sponsored health coverage at the level of the minimum required standard.

Within some industries, particularly those with low margins and lower-income, high-turnover employee populations, more companies would choose to write a check to the government and have employees purchase coverage in a reformed health insurance market:

• 42% of retail respondents said they would close their plans and pay a federal assessment.
• 28% of those in financial services would choose "pay" over "play."
• 24% of those in technology and telecommunications would opt out of employee coverage.

As the reform process continues to unfold, employers will want to model the financial and employee relations impact on their specific organization. And senior executives also are more likely to engage directly, given the cost and visibility of this important benefit.