The C-Suite Engaging HR

In the fall, our firm was approached by a national CEO organization to write an article for CEOs on confronting the rising costs of health care. This group had heard overwhelming feedback from their C-suite members wanting help reducing costs for their health care plans.

Health care reform is already having consequences beyond plan reorganization. PPACA is transforming the landscape of compensation, and, as a result, is inciting action in the leadership that had previously left health care to human resources. The C-suite, and particularly the CFO, brings unique abilities to the dialogue on benefits that can direct a company toward success. It is critical that management, both functional and executive, understands the implications of health care reform in 2014 and beyond.

Increased collaboration between Finance and Human Resources

The number one issue facing businesses today is ambiguity about the future around health care. Ambiguity in changing regulatory guidelines and rising costs causes executives to feel uncertainty about growing their businesses. Business Finance Magazine, in the recent article, “Bridging the CFO-HR Divide,” by Trent Beekman, notes that the average company diverts 1/3 of its finances towards human capital, including benefits. CFOs should be familiar with such a significant portion of company cost.

As health care costs rise year over year, CFOs are recognizing their fiscal responsibility to research the effects of PPACA on their companies. C-level executives (who may have traditionally only stepped in once a year to review rising plan rates) are engaging in the health care discussion. They’re finding that even after necessary cost shifting to employees, changing plans and reducing benefits, health care costs are higher than ever, and they want answers on how to combat this.

One of the answers is coming in the form of changing total compensation programs. Despite rising health care costs, benefits offering must remain competitive in order to retain high-value employees. Compensation strategy must be created with health care reform tax incentives and mandates in mind, and, to quote Beekman, “It will require an all-hands-on-deck mentality.”

Understanding the options

The implications of PPACA will be different for every company. PPACA is transforming the marketplace, both in benefits strategy and in employee opinion of benefits. There are myriad options to best set up a plan strategy for 2014 and beyond, while at the same time offering great coverage to retain top talent. For a company to stay competitive in the years to come, it is crucial that it fully comprehends these options at their deepest level. Finance executives may be more receptive than their HR counterparts to new benefit approaches that take advantage of new structures and incentives created by health care reform. The Business Finance Magazine article points out:

“Historically, CEOs and presidents have made all decisions on human capital expenditures [such as health care], and while they often consult HR as part of that process, more often than not, CFOs are kept out of the loop. Giving CFOs a greater presence and voice in the process could help ensure that such important decisions are more fully vetted.”

Benefits plans are like any other aspect of the business: someone needs to be steering the ship to make sure it goes the right direction. My dad always said, “If the boat misses the harbor, rarely is it the harbor’s fault.” Benefits planning requires more than just setting a budget at the beginning of the year and relying on a human resources team to determine the specifics. The C-Suite has plans for managing every other aspect of the business—a strategic road map is necessary for benefits, too.

Remaining at the forefront

Our company works with senior executives every day to help them optimize their investments in employee benefits. In doing so, we see that, across industries, regions and business sizes, business leaders don’t have the most basic working knowledge about the new structures and incentives embedded in health care reform. Everything else is inconsequential until executives truly understand the implications of health care reform.

As we have been saying for several months, we believe health care reform is the single greatest opportunity in our lifetime to get employers to think differently about how they allocate compensation to benefit programs. The entity (whether a consultant or a carrier) that helps the C-suite with a health care reform response plan will have an excellent opportunity to prescribe a package of products and services to better meet the employer's needs (and escape the potential “trap” of fighting over the scraps left behind after major medical decisions are made).

Now is the time for employers to recognize and implement changes that will set them apart from their competition. The Towers article points out that "savvy organizations need to act now to responsibly assess the business implications, model different scenarios and consider the impact of each reform option on their entire reward program." Leading employers will not be the last to figure out the implications of health care reform. If they are, they will no longer be leading employers.

The CHROME Compass is the leading platform to facilitate this response plan. Certified CHROME Consultants are in the lead position to take advantage of the opportunities created by health care reform. But, as my Dad always says, “Eventually, even the dummies will figure it out.” There is a window of opportunity here. Let’s not miss it!


Eric Helman
CEO and Founder
ContinuousHealth
www.continuoushealth.com

This article was first featured in the March 13th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Insights on the Uninsured in the Workplace

PPACA is designed to encourage the 51 million uninsured to enter the marketplace in 2014. Since this population has been largely unexplored, the management consulting firm Oliver Wyman did a survey of the uninsured in September, in efforts to uncover their demographics, healthiness, attitudes and preferences towards health care. Because we focus on employers and their benefit plans, we thought it would be interesting to look at these survey results in light of the currently “Waived” and “Ineligible” populations within employer environments. Of course, the number one source of “Waived” is likely to be employees opting to participate in their spouse’s employer-based plan, but let’s explore what insights this survey provides about those who are truly “Opting Out.”

Engaging coverage

The survey finds that when asked to choose between buying insurance and paying a penalty, 76% of the uninsured would elect to purchase coverage. The study based their analysis on the presence of an individual mandate and the commensurate penalties, provisions which may change in June, and the authors chose to model the full penalties under the individual responsibility provision of health care reform, which don’t take effect until year three.

Accepting future adjustment of the numbers after the Supreme Court rules, this 76% election, about 39 million of the currently uninsured, says something about our opt-in rates for currently waived and currently ineligible employees. The study notes that while “uninsured Americans overwhelmingly see value in coverage, few really understand their options…” This is true of health care today, including employer-sponsored coverage. Education can equal participation. As employers determine the best route for their plans in 2014, it is vital that consultants can assist employers as they communicate options to employees, both opted in and waived, in a way that will align with the benefits strategy. 

State exchange:  innovation or limitation?

The study’s authors make some interesting assertions about how this rapidly expanded individual market may cause a boom in product innovation.  Their argument is based upon the fact that we will have 39 million new “customers” making individual purchase decisions based upon their individual preferences.  This is in opposition to the current environment, where the majority of health insurance is purchased through an employer who has taken a “one-size-fits-all” approach to benefits. 

The study goes on to test the sensitivity of uninsured consumers as to their willingness to spend more based upon differences in product design.  The study outlines options that could reduce health care costs which interest different segments of the individual market, including wellness options that are currently part of some plans, like maintaining a healthy body weight or quitting smoking.  It also polled this group’s interest on options that are not widely available, like receiving a majority of medical care at retail clinic in a pharmacy or retail store to reduce costs, or paying extra for 24-hour-a-day, seven-day-a-week access to doctors. The authors conclude that this “is a promising situation for a retail market intended to push health care toward better, cheaper coverage.”  

But, as the authors accurately state, “It remains to be seen whether any or all of these specific alternatives will ultimately be permitted in the exchanges.”  It is equally possible that this marketplace innovation will be inhibited by the regulatory controls on the distribution mechanism.  Said another way, the fact that these new individual products must be distributed through public health insurance exchanges may act as a limiting factor on the innovation which would otherwise occur in a marketplace less regulated.

Income and subsidies

Not surprisingly, the single most determining factor as to whether the uninsured would purchase insurance (even in the presence of an individual mandate) was the net cost of the insurance premiums after subsidies, relative to family income.  (See the chart here for a breakdown that the survey details.)  Based upon the way the premium subsidies are constructed, the study found that middle income consumers are less likely to purchase insurance than the lowest income group. 

The study authors again insert an opinion as to how the future of health care reform may roll out.  They assert that there will be “significant pressure to reduce subsidies.”  They note this:

This price sensitivity could work against ACA.  Health care costs are rising… faster than the Consumer Price Index and the tax revenue that ultimately pays for government programs.  It will be difficult for the federal government to increase subsidies at the same pace as medical trend – especially if the eligible uninsured numbers continue to grow through layoffs and continued unemployment.

Health care is becoming more expensive at a rate faster than people are generating the income to pay for it. As a result, even though the affordability measure is set to index, which this article fails to mention, there is a chance that it won’t keep pace with medical inflation unless medical inflation slows.  More and more individuals can be expected to push over the 9.5% affordability threshold and be eligible for subsidized exchange coverage. To keep the total cost to the government system of providing subsidies, the threshold would have to rise year-over-year to make sure more and more people don’t become eligible. Incidentally, a provision for this was added during the reconciliation process.

The Three Groups of Uninsured

What we found most interesting was the identification by the authors about three distinct segments within the uninsured population. The segments they note are “Struggling and Unengaged,” “Want to be Healthier,” and “Engaged to Save.” (The chart below gives a summary of the information included in the article.) They highlight that the former two are similar to segments found in the employer-sponsored market.

We wonder, however, about the presence of the “Engaged to Save” segment in the employer-sponsored market today, as non-participants. This group contains uninsured who are lower middle class, a bit younger than the other two segments. They are healthy but price-sensitive, willing to do nearly anything to reduce their health care costs.  These are individuals who may have waived coverage in the employer-sponsored market, a decision that was likely spurred by cost-consciousness and a lack of education on the benefits. This is the group that employers can key in to if the best version of their plan in 2014 requires participation.

The survey authors draw an interesting conclusion about the differences among the three segments of uninsured Americans, stating that some of them “might be willing to trade the traditional broad network of doctors for discounts on healthy groceries.”  For employers who need to keep their employees on coverage to best optimize their plans, this could have implications for increased employer-sponsored options in wellness programs and excepted benefits. 

Looking ahead

As 2014 approaches, and as the decision from the Supreme Court in June looms ahead, employers must begin considering how PPACA will affect their company’s benefits strategies.  It is vital that employers have a tactical strategy in place, rather than reacting in response to the changes after they are in place.  Surveys like these will allow consultants and employers to be aware of the changing demographic, especially as it relates to waived and currently ineligible employees.

This article was first featured in the March 6th edition of our e-newsletter, Directions. If you'd like to receive that weekly email, contact directions@continuoushealth.com. (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.

Two Points of the Compass and How They’ll Transform Compensation Strategy

Our review of over 350 CHROME Compass analyses reveals that your average client’s plan is currently more affordable and covers more than health care reform will require. Let’s take a look at how employer-sponsored coverage will change as the result of these two points of the Compass.

3.63%

That is the percentage of adjusted gross household income that your client’s average employee contributes to his health premiums, based on the CHROME Compass analysis of 345 employer plans.

About three and a half percent, as opposed to the mandated nine and a half percent of modified adjusted gross household income that PPACA requires to make plans “affordable.”

80.52%

That is the average actuarial value of covered benefits for of all employer-sponsored plans, based on the CHROME Compass analysis.

Eighty percent, as opposed to the required sixty percent of actuarial value imposed by health care reform mandates in order for a plan to have “acceptable” coverage.

The Interplay of PPACA



Long term consequences

The new government standard allows higher contribution from employees than we’ve found on average by analyzing the plans of many of your client’s.  It also requires less coverage on an actuarial value basis than the averages we’ve found.  In fact, data generated with CHROME Compass, our leading predictive modeling tool, shows that 95.7% of employees are already in “affordable” coverage.

We’re on the brink of a major revolution in how businesses allocate compensation toward benefits.  Over the next few years, we’ll probably see a swing towards higher premium contributions from employees and a lower actuarial value of covered benefits as a result of two of the CHROME Compass points, the affordable cost and acceptable benefits requirements. The key will be the restructuring of compensation dollars in other areas to keep packages appealing to top talent.

With these significant changes only two plan renewals away, it is vital that your clients begin to reshape their business strategy in light of this massive legislation.  Let us partner with you as you navigate these changes with them.

For more information on how CHROME Compass identified these averages, reach out to your ContinuousHealth CHROME Compass Consultant.

This article was first featured in the February 28th edition of our newsletter. If you'd like to receive the weekly newsletter Directions, email directions@continuoushealth.com.  (Your email will never be shared, sold, or otherwise distributed, and you will receive only the type of content for which you sign up.)

Follow ContinuousHealth on LinkedIn or on Twitter @chealthupdate for interesting articles, industry insight, and a first look at new products and services.