Employers to reexamine health benefit strategies in response to passage of health care reform legislation

With health care reform efforts ramping up after the summer break, many of the nation’s employers are focusing on the action in Congress and plan to adjust their benefit strategies based on how final legislation affects their costs, according to a survey of 433 HR and benefit executives from midsize and large organizations conducted by professional services firm Towers Perrin. Employers say they will not absorb any additional costs that result from reform and plan to take actions to avoid doing so, including reducing benefits, raising prices for customers and/or reducing head count.

Although not as outspoken in the reform process as many stakeholders in the health care industry, employers are watching Washington closely, with 80% monitoring developments. Nearly one in four companies (23%) in the survey are currently rethinking benefit changes in light of possible reforms, and nearly all (89%) plan to reexamine their health benefit strategies for active employees in response to the passage of health care reform legislation. And while talent management considerations such as productivity, workforce health, and recruiting and retention remain important even in a tough economy, cost issues will dominate employers’ decision making in a post-reform world, according to the survey.

“With employer health care costs rising more than 150% over the last decade, it’s no surprise that 90% of employers list cost containment as the most important health care reform goal,” said Dave Guilmette, Managing Director of the Towers Perrin Health and Welfare practice. “ Many large employers, however, feel that current reform proposals are focused on other health care issues — such as expanding coverage and reforming certain insurance practices — and they feel they have already addressed these issues within their own workforces.”

In addition, employers do not expect that reform as currently proposed will 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 behaviors, an area many leading employers have begun to target as one of their key cost-containment opportunities.

Nevertheless, among health care proposals currently on the table, 53% of employers believe that research on effectiveness of alternative treatments will have a positive impact on their business by, over time, influencing the quality of care, and 44% believe that reforming the health insurance market to ensure guaranteed access to coverage regardless of health status will have a positive impact. However, nearly half (47%) of survey respondents believe that an employer “pay or play” mandate would have a negative impact on businesses.

“The way employers would respond to reform proposals that raise or lower their costs is one of our most telling findings — one that could conceivably impact economic recovery,” said Guilmette. “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 would respond to higher costs by reducing the benefits their employees receive.”

(See exhibits for details on how employers said they would respond to higher costs or savings resulting from health care reform.)

Despite the sharp focus on costs, the survey respondents express strong positive views on the importance of workforce health to business success, the role of health benefits in the rewards portfolio and the opportunities benefit programs provide in influencing workforce health. Notably, a majority (61%) say they would stand by their commitments 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).

“For many companies and in certain industries, health benefits are viewed as critical to the total rewards package,” says Ron Fontanetta, Towers Perrin Principal. “These programs provide important levers in managing talent and supporting other key business objectives.“

Towers Perrin’s Health Care Reform Pulse Survey also examined the experience of employers based in Massachusetts, a state that has imposed a pay-or-play mandate on employers and a coverage mandate on individuals similar to those currently proposed in Congress. Among those employers, most are not sure what, if any, impact the three-year-old Massachusetts mandates have had. Most respondents have seen little or no change in employee or employer health care costs or access to or quality of care. Notably, however, more than two-thirds of these employers report that their administrative burdens have increased.

Among the full survey group, employers expect they would respond to a pay-or-play mandate in the following ways:

• 37% of employers would provide company-sponsored health coverage that substantially exceeds the standard.
• 29% of employers would discontinue company-sponsored health coverage and pay the assessment if the per-employee costs of payments to the federal government were substantially lower than their current costs.
• 26% of employers would provide company-sponsored health coverage at the level of the minimum standard required.

“In some industries, particularly those with low margins and lower-income/high-turnover employee populations, some companies would, under a mandate, choose to write a check to the government and allow employees to purchase coverage in a reformed market for individual health insurance,” noted Fontanetta. “For example, fully 42% of retail companies in the survey said they would close their plans and pay a federal assessment, versus 28% of those in financial services and 24% of those in technology/telecommunications.”

“As the process continues to unfold and specific elements are known, employers will want to model the financial and employee relations impact on their specific organizations,” added Guilmette. “Senior executives also are more likely to engage directly, given the cost and visibility of this important benefit.”