What’s The True Cost of Health Care Reform?

I was able to catch part of the recent webinar put on by the Corporate Executive Board’s Corporate Leadership Council on Benefits (that’s a mouthful). They focused on many of the financial costs associated with the coming health care reform and how companies are predicting that they will react. Here are some of the key figures shared:

For the last five years, insurance rates have increased an average of 8.9 percent per year making health care in 2010 over 50 percent more expensive than it was in 2005.
They predict that with health care reform in place, employer cost is going to nearly triple over the next eight years (without reform, it would be nearly double).
Over 50 percent of companies polled said they were somewhat or extremely unlikely to drop benefits in response to health care reform.
Almost 60 percent are not considering changing their premium structure and over 70 percent are not considering changing the employer/employee cost ratio in response to health care reform.

But one figure out stood out to me: 11 percent. What’s that 11 percent for?

Examining health care attitudes more closely

When employers were asked what challenges they were planning to spend the most resources on in the next 12-18 months on, only 11 percent answered “Measuring the Impact of Benefits on Attraction, Performance, and/or Retention.” It was at the bottom of the list — below wellness, below financial concerns, below vendor management, and below anything else.

Maybe you don’t find it strange but I find it outrageous. Isn’t this the first question any company should be asking themselves before diving deeper into the other questions? In fact, shouldn’t it have been all figured out before a mandate passed? And now that new conditions have been applied, shouldn’t it be the first question on every senior leader’s mind before doing anything else?

History stands against them

When health care benefits were first implemented, it was in response to wage controls set during World War II. Employers wanted to differentiate themselves when they couldn’t pay more for top talent, so they started offering health benefits. Soon it became the de facto benefit offered by every company in the Fortune 1000, with no thought as to how best utilize it, whether it makes a difference, or (if alternatives existed) would it be important to offer it at all?

Companies had an opportunity to be thoughtful about their health care benefits for a half century without mandates and the reasoning for almost universally keeping them in place was nearly always, “If my competitor is doing it, I’m going to do it.”

Unfortunately, keeping up with the Jones’ isn’t a winning business strategy.

The more things change…

Now that many of these changes are being implemented, companies still aren’t considering whether continuing to offer benefits (at a higher price) has the desired impact on attraction, performance, or retention. And while taking this into consideration would be a change in the status quo, you would also assume that it is necessary to change the mindset about benefits.

Up to this point, it has been “benefits at nearly any price,” which has only helped drive up both the cost and necessity of employer-based health care (since they are the only ones who can afford to cover it).

Until we put a dollar amount on how much it is worth for a company to keep benefits in house (especially when there will be viable alternatives in the future), we won’t be able to make the financial decisions necessary to analyze what these cost increases mean. And we won’t be able to put a dollar amount until we truly evaluate the attraction, performance, and retention value of employer provided health care versus the viable alternatives.

Hopefully those 11 percent can help pave the way to understand the true cost of health care reform.