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A Mandate for Change

Some HR executives and healthcare experts believe it's time for employers to get out of the business of providing health benefits.

Friday, May 2, 2008
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It's practically a fact of life that Americans get health coverage through work unless they're elderly, poor or unemployed. But this employee benefit is under attack as never before as the debate over healthcare reform heats up in a presidential election year.

Some human resource executives are all for giving up what others see as a vital offering. In pondering how best to cover everyone, including the nation's 47 million people without health insurance, one question is what role, if any, employers should play in a new, improved healthcare world.

Some HR executives and policy experts favor a version of the status quo: employment-based health coverage with significant changes to make healthcare delivery and financing more efficient.

Others want employers to get out of the health insurance business and leave the task to government agencies and insurers. Still others propose a solution between the two.

"Nobody agrees on much of anything except that something needs to be done," says Blaine Bos, a worldwide partner with New York-based benefits consulting firm Mercer.

The changes proposed so far may not bode well for comprehensive healthcare reform, but they reveal deep thinking and serious debate about an issue that affects virtually all Americans, young and old, rich and poor, sick and healthy and everyone in between.

Whatever reforms result, HR executives will oversee their implementation at the company level. Some of them are trying to have a say in the solution, cognizant of the fact that healthcare is, by far, the benefit that's valued the most by employees.

 

Blow It Up

Paying for medical care used to be like buying anything else. People paid doctors directly with cash, food or whatever else they had. Government-imposed price controls in the late 1940s froze wages, forcing employers to find other ways to compete for labor. Unionized companies, then others, turned to health benefits to boost compensation. The modern employment-based health insurance system was born.

Today this voluntary benefit has become de facto required. Employees and job candidates expect and value health plans -- a survey conducted last year by the National Business Group on Health found that 75 percent of the 1,619 workers surveyed value their employer's health plan as the most important benefit, while 83 percent of them said they would rather see their salary or retirement benefit reduced rather than their health benefit.

More than 177 million Americans, or 60 percent of the population, get health coverage through employers as active employees, dependents or retirees, the latest U.S. Census Bureau figures show.

"In a competitive labor market, you're going to provide health insurance, love it or hate it," says Dallas Salisbury, president of the Employee Benefit Research Institute, a Washington-based think tank.

But critics such as Alain C. Enthoven call the employer-based system "a historical accident" that no longer works. The emeritus professor of management at the Stanford University Graduate School of Business says, "Nobody could stand up today and defend it on a rational basis."

Some HR executives agree. "We don't offer that much value in a macro sense," says E. J. "Ned" Holland Jr., senior vice president of HR at Embarq Corp., a telecommunications company based in Overland Park, Kan. He likens the employer's role in health insurance to a reseller, with administrative support thrown in. "I know a bunch of people who'd like to get out of the healthcare business," Holland adds. Many employers secretly agree: It's not their core business.

Even those who support the employment-based system acknowledge its weaknesses. People are uninsured chiefly because small businesses can't afford to offer coverage, and many employees can't afford to buy it on their own. Large, self-insured employers are fed up too, with healthcare costs that rise faster than wages and inflation, among other problems.

"When you reach this point of pain, it requires bold change," says David R. Nachbar, senior vice president of HR at Bausch & Lomb Inc., an eye-care products company based in Rochester, N.Y.

Enthoven, Nachbar and others who want to blow up the system and start anew don't blame employers for the mess. "The employers are being pushed around" by insurers to please as many workers as possible by offering plans with huge provider networks and generous coverage but no incentives to save, says Joseph Minarik, director of research at the Committee for Economic Development, a Washington-based nonprofit comprised of business and university leaders.

The CED's reform proposal would replace employers as the primary source of health coverage with regional exchanges overseen by the "Health Fed," a new, independent government agency modeled after the Federal Reserve. Individuals, not employers, would buy health insurance from a menu of private plans, with coverage and pricing standards set by the Health Fed. No one could be turned down or charged more because of age or health status. (See Quality, Affordable Health Care for All: Moving Beyond the Employer-Based Health-Insurance System,www.ced.org)

The idea behind such market-based "managed competition" is to make insurers compete more on quality and price, the CED says. Employees would be able to choose from among many plans, instead of the few that are available through their employer. Health plans would be portable from job to job, eliminating the problem of "job lock."

Financing would also change dramatically. Employers' and employees' tax-free contributions would be replaced by federal fixed-dollar payments to each household to buy basic private insurance. People could buy richer plans with their own dollars. Employers could provide extra money to their workers to help pay for this supplemental coverage and offer wellness benefits such as fitness centers and health-risk assessments.

Breaking the link between employment and health insurance is also a feature of the Healthy Americans Act in Congress, sponsored by Senators Ron Wyden (D-Ore.) and Robert F. Bennett (R-Utah). Similar to the CED proposal, the comprehensive reform bill promises private, portable health insurance for all, in part by requiring individuals to buy it through state-run "health help agencies."

Employers would help cover the cost through "shared responsibility payments" calibrated to their size and payroll.

Advocates of managed competition say that taking employers out of the equation would not hurt recruitment because they could offer higher pay instead of health coverage. "The employer needs to take a much broader look. How could things be different? The system we have isn't working," says Enthoven.

Keep It, With Changes

Some human resource executives and business groups beg to differ. Employment-based health coverage should be maintained, they say -- with major changes to improve the quality and control the costs of medical care.

"It would be hugely disruptive to abandon the system," says Johnna Torsone, senior vice president and chief HR officer at Pitney Bowes Inc., the mail and document services company based in Stamford, Conn. "I don't think we can throw the baby out with the bath water. It's a question of, 'Can we do it better and smarter?' "

Bos adds, "Smaller employers are finding it difficult to stay in the system, and they're exiting at 1 percent to 2 percent a year. But larger employers remain committed." Only 3 percent of 2,000 employers with three or more employees said they were very likely or somewhat likely to drop health coverage this year, according to a recent survey by the Kaiser Family Foundation and Health Research & Education Trust.

Most employees would prefer to keep the current system as well. About three out of four participants in the NBGH survey said they'd prefer to continue getting health benefits through their employer rather than getting additional salary to purchase benefits on their own.

The Washington-based HR Policy Association, which represents large companies, is "committed to the employer-based system with significant changes . . . to make the marketplace more rational [by better aligning healthcare quality and cost]," says healthcare policy director Marisa Milton. It favors increasing access to health insurance, but believes it makes little sense to add the uninsured to a dysfunctional system, she says.

Large employers say they are willing to do their part if medical providers, insurers, governments and individuals do theirs.

The Business Roundtable, a group of Fortune 500 CEOs, would expand coverage by requiring individuals to purchase at least catastrophic coverage, with federal subsidies for low-income people and unspecified ways for early retirees and the unemployed to buy into affordable private plans or public programs, according to its reform principles issued last summer.

In addition to expanding coverage, other changes must be made and integrated to make the whole healthcare system function more efficiently, HR executives say. These changes include: better coordination of medical care, improved health-information technology, clearer information and more incentives for consumers, and more focus on wellness and prevention.

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To take just one point, primary-care doctors could be paid to be "central control points" who track and coordinate the medical care that patients receive from various providers, says J. Randall MacDonald, senior vice president of HR at IBM Corp. in Armonk, N.Y. "We don't have that quarterback."

A group that is staking out a middle ground between removing employers from health coverage and keeping them involved is the ERISA Industry Committee in Washington, which supports large-employer benefit plans. ERIC wants to give employers a choice between the current system and a new system in which local "benefit administrators" -- insurers, banks, mutual-fund companies and others -- would compete to sell portable health plans to employers and individuals.

Employers could also opt to give employees money to buy coverage on their own. The federal government would regulate benefits administrators and set uniform standards for coverage.

The new system "combines a market-based structure with individual choice and group risk sharing. This structure will make possible the continuation and possibly the expansion of employers' role as a facilitator rather than solely as a provider of benefits," reads ERIC's May 2007 proposal, A New Benefit Platform for Life Security. Employees would help finance coverage by paying a contribution of its choice to benefit administrators or individuals.

"We need to get away from employers being Big Brother," says Edwina Rogers, ERIC's vice president of health policy. Costs would ameliorate if self-insured companies could pool their risks with each other through benefit administrators, she adds.

Mandates: No Way!

While the exact path toward healthcare reform is unclear, business groups do know what they don't want. They don't want a government-run system, a mandate that employers offer health insurance (or payments in lieu of it), the elimination of the federal tax deduction for benefits, or state-by-state reform. In short, they want to control whether and how they offer health benefits.

Mandates, in particular, have raised some hackles among business leaders. Only one state, Hawaii, requires employers to offer health insurance. Massachusetts and Vermont require them to "play or pay" -- offer coverage or make an annual per-employee payment to the state to help residents obtain insurance. Employers haven't challenged these state laws, but they'd likely fight a national employer mandate -- and they are challenging in court San Francisco's play-or-pay requirement, which took effect Jan. 1.

"Mandating employers to offer coverage or requiring them to pay the government is very harmful . . . because it will only force employers to eliminate jobs, move more jobs offshore, stunt future job growth or raise consumer prices," said NBGH President Helen Darling, in announcing her group's opposition to employer mandates. The group and ERIC support an individual mandate that requires individuals to purchase at least basic health coverage.

Another nonstarter for business -- capping or cutting the federal tax deduction for health benefits -- is likely only if health insurance access is completely restructured, experts say. But with an estimated value of $168.5 billion in fiscal 2009 -- the single largest item of foregone federal tax revenue -- the health-benefits deduction makes a tempting target for politicians in search of budget revenue. In fact, many employers would like to see the tax deduction expanded to individuals who buy health insurance on their own.

If Congress did cap the tax break, some employers would drop coverage, and others would keep it but limit benefits to those they could deduct, says Mercer's Bos. The result would be more uninsured and underinsured workers -- hardly the goal of healthcare reform.

Many health policy experts believe it's a matter of when, not if, politicians make changes to the health care system. Indeed, Democratic Senators Hillary Clinton and Barack Obama both support some form of universal health coverage, while Senator John McCain, the presumptive Republican nominee, supports a more market-based approach to reform. Incremental, rather than comprehensive, reform is more likely because of the difficulty of reaching consensus among many players. But there's one point they all agree on: Sooner would be better than later.

If healthcare reform takes too long, IBM's MacDonald says, "you'll see an erosion of health benefits from employers," even large employers, if costs get too high. He adds, "The role of employers has to be defined in relation to shareholders. We have to do what's right for the business."

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