From the December-January 2009 issue of Treasury & Risk magazine

Part of the Cure

It's clear that President-elect Barack Obama's administration aims to hit the Oval Office running when it comes to health care reform. In naming Tom Daschle --who wrote the book Critical, calling for a bold and comprehensive insurance plan, as secretary of health and human services, Obama signaled his intent to move fast. And leading Democrats wasted no time post-election in preparing a bill to immediately introduce after Inauguration Day. Rather than putting health care on the back burner while focusing on economic stimulus legislation, congressional proponents and industry experts are promoting it as an important part of any recovery plan. "The economic problems call for dramatic changes," says Linda Havlin, a worldwide partner at Mercer Health & Benefits. With ideological opposites--from Fortune 500 CEOs to union leaders--supporting change and a Democrat-led Congress, she adds: "There is perfect alignment of the sun, moon and stars."

Or so hope many business leaders who, for the most, applauded Senate Finance Committee Chairman Max Baucus' (D-Mont.) and Education, Health, Labor and Pension Committee Chairman Edward Kennedy's (D-Mass.) efforts in the supposedly lame duck congress to create a consensus bill.

Most plan sponsors and C-suite executives are said to want to see employers remain the primary insurance providers (a plan favored by Obama) but with no reduction in tax benefits (Baucus has hinted at a cap) for the employer or employee. They also endorse a national exchange that would make health care more affordable for the 46 million uninsured and a nationwide program to reform out-of-control medical spending.

These views were borne out by an International Foundation of Employee Benefit Plans survey showing that 71 percent of 1,054 U.S. plan sponsors, trustees and other benefits officials endorsed dramatic changes. Nearly two-thirds think corporations should continue to lead the way. "Like many Americans who are struggling with health care, employers are also frustrated with the system," says Sally Natchek, the foundation's senior director of research.

As companies wrangle over how to cut costs, expand preventive care and shift costs to employees, many see health care reform as essential in tough economic times. "It's the single biggest cost pressure our members face," says John Castellani, president of the Business Roundtable. "This is reaching a tipping point."

Some say it has passed the tipping point. While businesses were able to sustain 2008 health plan spending increases in the 6 percent range (at 6.3 percent) for the fourth straight year, with projections for a 6.4 percent rise in 2009, they did so only by cutting benefits and plan choices, negotiating cheaper rates and increasing employee contributions, Havlin says. Without these changes, the cost of large medical plans would have increased 8 percent, she says.

Already changing are plan deductibles, which, according to a Mercer survey, doubled to an average of $1,000 from $500 in 2007. A larger deductible keeps costs down by making employees more conscious of their medical spending, according to Mercer's just-published National Survey of Employer-Sponsored Health Plans. That contrasts with a median deductible of just $250 in 2000, when only about half of employers (compared with four-fifths today) imposed a deductible for preferred provider organization (PPO) coverage.

Expectations for 2009 also belie the potential impact of the continuing global economic crisis. When jobs are threatened, consumers rush to get care that they might otherwise delay, making medical care more expensive, according to Mercer. Laid-off employees paying for COBRA coverage typically use medical facilities more often than active workers. And more employees are likely to suffer stress-related behavioral and medical ailments as they deal with investment losses, job insecurity and declining home values.

While most big companies are locked into insurance plans for 2009, prices will likely rise as health plans and providers seek to recoup their investment losses. High unemployment leads to more uncompensated care and strained public safety nets, such as Medicaid, which respond by freezing increases in compensation.

All of which makes the time ripe for change--but, the right kind of change, says Frank McCardle, a principal at consulting firm Hewitt Associates. "Companies are generally concerned with a tax cap," he says.

And questions still need to be answered. For example, who would employers have to cover? Views are mixed on Obama's support for a pay-or-play program, in which corporations would either provide insurance or pay into a national pool. Another question is what kind of tax cuts would be available to employers who haven't covered workers before?

For small businesses, which for the most part have found health insurance prohibitively expensive, Obama has supported a health tax credit refund of up to 50 percent of the cost of employees' plans provided employers offer "quality" plans for all employees and pay a "meaningful share" of health premiums. The vague wording presents many opportunities for confusion.

In any case, a Mercer survey of 545 employers that don't provide insurance found that 60 percent were willing to contribute only $50 or less (some said zero) per month for health care. Ten percent said they would be willing to pay $200 per month. In Massachusetts, the play-or-pay law requires employers who don't meet the "play" part to "pay" $295 per employee per year to the state, though that amount is likely to increase soon.

A likely deal-breaker, says Steve Wojcik, vice president of public policy at the National Business Group on Health, would be giving states the right to make their own laws. "The inability to provide uniform benefits nationally would be an administrative nightmare for multi-state companies," he says.

Industry generally supports: government contributions to catastrophic health costs in return for lower employee premiums; legal reforms to limit malpractice verdicts and insurance costs; preventive services; more employer-driven programs, such as health savings accounts; medical pay for performance and other measures.

Of course, despite the early hoopla, health care reform likely will be implemented incrementally. Havlin suggests restraint when it comes to introducing specifics, with moves to increase acceptance of the concept in principle coming first. "If there's one thing we learned from the Clinton health care proposal, you don't want a bill with 900 pages of detail," Havlin says. "Too many special interest groups will have their own reasons to see it die."

Sen. Kennedy hopes to make this issue, for which he has long fought, his legacy--and possibly his last legislative act as he battles brain cancer. "Emotion is running very strong to support Kennedy in his career passion," says Havlin. "Legislation is likely."

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