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Employers providing health coverage will lose big if healthcare reform fails, says an employee benefits expert in this opinion piece. Comprehensive reform eventually will provide substantial financial savings, compared to maintaining the status quo.

Many larger employers still seem to be on the fence regarding the healthcare-reform proposals under consideration. Some very large employers, including many members of the Business Roundtable (as reported in the Wall Street Journal on Sept. 25, "Overhaul Divides Business and Its Traditional GOP Allies"), support the need for comprehensive reform.But others are still concerned that the reforms enacted will raise costs, and perhaps offer compliance difficulties as well.

A survey of 160 employers by Watson Wyatt, released on September 28, indicated that 73 percent of respondents believe healthcare costs will rise due to enactment of healthcare reforms. The survey also found that while 60 percent would support an individual mandate, only 20 percent would support an employer mandate.The House of Representatives and the Senate Health, Education, Labor, and Pensions Committee drafted bills earlier in the summer, and at this time the Senate Finance Committee has a "chairman's mark" draft that is continuing to be modified before going to a vote by the full committee.Then, the two Senate bills will have to be combined, leaving employers anxious to see how some very different provisions will reconciled.Both the House bill and the HELP Committee bill include a mandate for employers over a certain size to provide health coverage to employees and pay a major portion of the cost.The Senate Finance Committee bill lacks a full employer mandate, but does impose a potentially perverse requirement: Any employer with 50 or more employees and any of whose employees qualify for a federal subsidy, would have to either reimburse the government for the cost of those subsidies or else pay them $400 for each full-time employee.The requirement could discourage employers from hiring low-paid employees who might qualify for the subsidies.

But for larger employers, nearly all of whom already provide healthcare coverage, the issue is moot. Plus, it's quite possible this provision will not survive either the cut in compiling the full Senate bill or the final combined bill emerging out of Congress.Certainly, the draft bills have many potential implications that could positively or negatively affect various employers in different ways, depending on their current plan designs, workforce characteristics, costs and so forth.But looking at just the financial impact for employers that already provide, and largely pay for, their employees' health benefits, should lead one to conclude that passage of comprehensive reform eventually will provide substantial financial savings, compared to maintaining the status quo.If so, employers should be more proactive in lobbying for passage of healthcare reform.

While the three draft bills differ in details and it is uncertain what, if anything, will finally emerge and become enacted, some of the key provisions employers might expect to see in the final legislation include a mandate for larger employers to provide health coverage and pay for a large part of its cost.Employers with 25 or more employees (Senate HELP Committee bill) or with an annual payroll of $500,000 (House bill) must provide coverage or pay, as a penalty, a contribution to a national health exchange (House bill) or regional/state exchange (HELP bill) for employees to obtain coverage. While this certainly means more costs for some small employers, their contribution requirements are less than for large employers, and many of the smallest ones would be able to obtain a tax credit to help offset much of their costs. The HELP bill would require employers that provide coverage to pay at least 60 percent of the premium, while the House bill who require paying 72.5 percent for employee coverage and 65 percent for family coverage. The purpose of this article is not to speculate on the likely outcome for this process or critique specific provisions in the existing draft bills. Instead, it attempts to show that the overall provisions of an employer pay-or-play mandate, an individual mandate, insurance-market standards and exchange-based purchasing, and provider-system reforms should lead to lower costs for larger employers almost all of whom already provide healthcare benefits to their active employees.

By requiring more equity among employers for providing healthcare coverage, increasing Medicaid coverage eligibility and making purchase of individual coverage easier (e.g., through an exchange) and financially more affordable (through subsidies), employers that currently cover many employees' dependents should see some savings. While the impact on employer healthcare costs apparently has not been quantified, the impact for many could be substantial both on healthcare costs and on employee productivity. Employees who stay because of health insurance are likely to be older or have current or anticipated health conditions (or their covered dependents do). Providing healthcare coverage is one of the top reasons for picking or staying with an employer, according to most employee surveys. According to a study by Jonathan Gruber in 2000, up to 25 percent of employees may be constrained by job-lock. (See "Will Health Reform Free Workers from 'Job-Lock'?" in the August 5, 2009 issue of U.S. News & World Report.). This figure could go higher if stronger delivery-system provisions and greater administrative simplification were enacted. Plus, one could argue that much greater savings are possible under other reform models, such as those used in Canada, Europe, Taiwan or Japan. But that is beyond the scope of this analysis.

Put these figures together and employers now providing health coverage eventually could save perhaps 30 percent or more [(1-16 percent) x (1-3 percent) x (1-8 percent) x (1-8 percent) x (1-5 percent) = 34 percent]. Employers who currently provide medical coverage might want to run their own estimates, applying the factors and formulas above to their own data. Remember that these potential savings would apply to the total premium cost (or claims plus administrative costs for self-insured plans). This means that both employers and employees would save on their respective contributions. Those reading the article in the August 20 issue of Fortune by Shawn Tully entitled "Obamacare Could Cost You $4,000 a year," might still be concerned that the reform proposals will hurt more highly paid employees. If we look at another employee who earns the average salary, $50,000, the results are also quite different. If the employer drops health coverage, this employee would get about $8,500 in "affordability credits" under the House bill (which assumes he can afford 9 percent of his pay for healthcare) and only pay out $5,000 for the original $13,500 family coverage premium. As before, if the company just needs to break even on its costs, then the employee would get a raise of almost $5,660. His take-home income from using the health exchange increases from $47,000 ($50,000 pay - $3,000 in plan contributions when the employer provided the coverage) to $50,660 ($50,000 + $5,660 raise - $5,000 plan contributions to the exchange).

Since this average employee comes out ahead, the employer could apportion its pay increases a little differently to give higher-paid employees slightly more, while lower paid employees would still have a net gain due to the credits. However, employers might have difficulty explaining and justifying any complex formulas that appear to favor higher-paid employees.So the original example is hardly reflective of the situation for most employees. Even if Harry was originally earning $100,000, the company could afford to give him a sizable raise (again, up to 13 percent, if the average salary were $50,000), without spending any more.Employers thinking through these issues carefully should find that they have a strong case to push Congress to pass healthcare reform with universal coverage, a more competitive group health insurance system and strong delivery-system reform measures.On the other hand, if employers don't take advantage of the remaining window of opportunity, and reform of any sort fails for another several years, they will surely be big losers. Not only will they fail to gain the potential savings discussed above, but several forces will further drive up the costs for those that try to keep offering healthcare coverage. One can find fault with many provisions of the current draft bills in Congress or still hold out hope that a totally different reform model might be adopted at some point. But if any healthcare reform passes in the near future, it is politically most likely to reflect the broad principles to these bills, expanding the current mixed system of government plans and employer-based coverage, along with one or more purchasing exchanges for individuals and at least small employers. Over time, we may all want to revise many detailed provisions. But if we do not enact some foundation of universal coverage, insurance-market regulations and delivery-system reforms, then we will continue on the downward spiral of a system that has huge gaps in coverage, poor care quality for too many individuals (despite well-known exceptions), Byzantine administrative processes and costs that are generally double what other advanced economies pay and threaten the stability of private employer plans and the solvency of federal and state governments.

Source: Human Resource Executive Online

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