Smart CEOs Aren’t Waiting For Washington To Fix The HealthCare Crisis

When the U.S. Senate rejected a bill that would have repealed parts of the Affordable Care Act and subsequent reform efforts tanked, it became clear that the nation’s healthcare system won’t see meaningful reform this year—or next. “I would not bet on anything becoming law before the 2018 election,” says Matthew Fiedler, a fellow with
USC-Brookings Schaeffer initiative on health policy in the economic studies program at Brookings Institution, a Washington, D.C. think tank.

That uncertainty leaves employers in a holding pattern. With the mandate still in effect, smaller businesses nearing the 50-employee threshold may put off hiring decisions. The requirement to cover specific essential health benefits and pre-existing conditions also remains in force—for now. Plus, the so-called “Cadillac Tax” scheduled to take effect in 2020 will impose a 40 percent surcharge on the value of employer-based health premiums above specific thresholds.

“That’s still sitting out there and we need that resolved,” says Jerre Stead, CEO of IHS Markit, a London-based analytics solutions provider with key operations in Englewood, Colorado, where unemployment has fallen to 2–3 percent. “In recruiting today, more and more people ask whether you’re going to have healthcare coverage in the future. And the answer is, ‘Yes, we hope so.’ That’s not the answer I’d like to give. If there’s any place in the country where folks can get a job at the drop of a hat, it’s here. So, as an employer, you want to give them that certainty.”

At the end of the day, Stead says “taking care of our colleagues is just something we’re going to do.” If the tax stays on the books, then he’ll have no choice but to pay it.

With the escalating war for talent, health insurance is becoming a competitive requirement. Midsize companies (50–499 employees) mirror larger outfits (500-plus employees) in prevalence of healthcare plans, according to Transamerica’s employer survey report: in both categories, 98–99 percent offered plans, compared with 57 percent of small businesses.

The specter of rising costs has not dampened companies’ expectations that they will continue to provide coverage, according to the annual employer survey by Willis Towers Watson, which found that in 2017, employer confidence in offering healthcare benefits rose to its highest level since the ACA was passed, with 92 percent saying they were “very confident” they would still be offering benefits in five years, up from 87 percent in 2015. And survey respondents were under no illusions about future affordability of healthcare; they anticipated healthcare costs would rise by 5.5 percent in 2018, compared with 4.6 percent in 2017.

Exploring DIY Solutions
For businesses, ballooning healthcare costs are simply a fact of life. The average premium for family coverage hit $18,764 in 2017, up from $11,480 in 2006, according to Kaiser Family Foundation stats. Total U.S. healthcare spend for 2016 reached nearly $3.4 trillion, up 4.8 percent from 2015. What’s more, according to the Centers for Medicare & Medicaid, healthcare spend is projected to reach nearly 20 percent of GDP by 2025.

“Our healthcare system is a mess,” says Zane Tankel, CEO of Apple-Metro, who began self-insuring two years ago as a way of bringing costs down.

However, many say the noise around the healthcare legislation debate is distracting CEOs from exploring solutions. Eric Helman, chief strategy officer for the employee benefits firm Hodges-Mace, says his meetings with C-Suite members get mired in talk about Capitol Hill. “It’s all about whether we will have healthcare reform. So, a CEO will only spend a couple of hours a year on benefits and that conversation is consumed with a bunch of stuff that doesn’t matter.”

Yet, regardless of the details, any future bill is won’t solve the problem, argues Paul Johnson, CEO of Redirect Health. “[The legislation] is all about how you pay for healthcare, not how you fix it,” he says. “The existing system is ripping people off because it’s not designed around the customer. It’s designed around the industry. And the industry is so freaked out now, they’re saying the only answer is single payer, because they’re terrified of having to operate in a real marketplace where competition exists.”

Such a marketplace would force the industry to address the waste and inefficiency responsible for soaring costs. Studies, including Harvard’s examination of Medicare, estimate that waste in the U.S. system—overcharging, overtreatment, administrative complexity and fraud—accounts for between one-third to one-half of total costs.

“We think it’s much closer to 50 percent,” says Johnson, who blames, in large part, hospital buy-ups of medical practices, which then owe a quid pro quo to the hospitals. Redirect Health aims to bring prices down with a system that offers employees, particularly those making less than $15 per hour, unlimited access to primary care, with the long-range goal of keeping them out of the hospital labyrinth.

“We’ve found you can do that for less than $100 per employee,” says Johnson. “To be successful at disrupting the healthcare system, we have to disrupt both the supply and the demand side.” He points to Uber as an example. “Uber didn’t go after the people going back and forth to the airport. They went after the drunks in downtown Scottsdale. They disrupted supply and demand.”

Innovation demands taking risks, which is hard to do when you’re ducking for cover, says Avik Roy, president of the Foundation for Research on Equal Opportunity, an Austin-based think tank. “CEOs are cautious and reluctant to do anything that might rock the boat on health benefits because they fear there will be a backlash among employees,” he says. “I respect that concern and the need to make sure employees are happy, but at the end of the day, they will be happy if you can increase their compensation because your healthcare costs are lower than your competition’s. There’s too much fear and not enough courage and innovation.”

Helman adds that doing nothing to address rising costs can have a lasting, if not permanent, effect on future bottom-line costs. “That inaction has a compounded future cost. You take a year off and you never get that back. Because guess what? Inflation didn’t take a year off.”

Calling on Consumers
Employers continue to offload some of the burden with high-deductible plans and health savings accounts (HSAs), which shift more control and responsibility to employees. In 2017, 55 percent of employers offered an HSA, up from 42 percent in 2013, according to the Society for Human Resource Management. Helman says that a year in which premiums don’t go up generally is a perfect time to impose a modest increase in employee premiums, so that when they go up the following year, the bite will be less painful.

“But employers know there’s a limit to that,” says Ron Williams, former CEO of Aetna and a board member at Boeing and Johnson & Johnson, who notes that cost-sharing can only take one so far. “The real question is how do companies get better value out of the money they are spending?”

The more innovative approaches move away from the classic fee-for-service model that rewards quantity over quality toward value-based reimbursement. With bundled payments, for example, providers receive one fee for all the care required to treat a patient’s medical condition. “From pre-op to surgery to post-op physical therapy, it’s one fee,” says Brian Marcotte, CEO of the National Business Group on Health (NBGH). “If it gets screwed up, you don’t pay again. That’s a more value-based arrangement.”

Chuck Ludmer, principal at tax advisory firm CohnReznick, says he is working with third-party firms to negotiate costs with providers using a method called focused average cost tracking, which caps expenses based on what Medicare/Medicaid would reimburse. “They can bring the costs down by as much as 30 percent,” he says. Benefits consulting firms have also sprung up, offering employers a way to dramatically slash hospital bills.

One way for self-insured employers to experiment with bundling is to work with an accountable care organization (ACO), a network of providers who share responsibility for quality and cost of care. Because they are rewarded both for positive outcomes and for efficiency, typically in the form of bonuses, they’re incentivized to give only the quality care that’s needed. According to the most recent survey from NBGH, 20 percent of large employers are currently experimenting with ACOs, and that number will rise to 50 percent by 2020.

Efforts are also underway at companies of all sizes to bring down consumption of healthcare through alternative delivery, such as telemedicine, and workplace wellness initiatives. Stead swears by the carrot method and credits IHS’s health incentives—which have a 70 percent participation rate—for the fact that the company has raised employee premiums only once in five years. “The key is you have to start with an assumption that it will take five years to break even,” he says, noting that companies often scrap wellness plans when they don’t see results in two years. “But it really does take that long to educate people.”

The Search for Value
“It’s incredibly difficult to calculate an ROI for wellness,” syas Linda Keller, COO of employee benefits for global insurance brokerage Hub International, who says she sees the language moving away from ROI and toward VOI, or value for investment. “If you can organize it around engagement, your [company] will see the value because that improved morale results in decreased absenteeism and improved productivity.” Hub’s annual survey of companies with 50–1,000 employees found that 54 percent cited morale as their most improved metric from implementing workplace wellness programs.

According to Transamerica’s survey, 70 percent of employers said their wellness programs had a positive effect on cost. “Facts are our friends,” says Stead. “If you measure it, you’ll see it.”

CEO involvement is also key—though rare. Williams recalls a meeting of CEOs during which he asked how many of the participants knew how to reach the person responsible for the company’s supply chain. “All the hands went up, even if that person was two levels down. Then I asked how many know the name, location and number of the person responsible for purchasing healthcare benefits in their organization. I didn’t get a lot of hands.”

He likens healthcare to IT, which was also once seen as a specialized area. “Most companies recognize that IT is a central vector of the business, and they don’t leave their digital strategy to a unique part of the business. It is the business,” he says. “Now they just have to think that way about healthcare.”

Read more: Self-Insurance Is Not Just For Big-Caps