Health Insurance Costs and Reform Uncertainty Challenge Employers

It appears that reforms under the Patient Protection and Affordable Care Act are doing little to appease employers' longstanding concerns about the rising cost of providing health insurance to workers.

That might not necessarily be a bad thing, however, if that anxiety creates cost-effective new benefit options that target what employees say they value.

For the fourth year in a row, the cost of employer-sponsored healthcare topped the list of concerns in the 18th annual Top Five Total Rewards Priorities Survey, published by the International Society of Certified Benefits Specialists and Deloitte Consulting LLP.

David Lusk, a principal at Deloitte and author of the report, says there is too much uncertainty around the PPACA to offer much comfort for employers right now.

"The first [uncertainty] being the Supreme Court reviewing the individual mandate," Lusk says. The court has set aside three days next week for the review, with a decision expected in June. "There are studies that have been done that say without the individual mandate, the concept doesn't hold together. We are going to spend more time hearing and arguing about this topic than any topic in decades. That gives you a sense of the importance of it."

Lusk says that 48% of the 330 respondents to the online survey said they were taking a "wait and see" approach, and apparently had no plans make changes in their coverage.

Of the companies planning changes, 17% said they might drop employer-sponsored coverage for full-time employees and pay the penalties, 37% plan to maintain their grandfathered health plans as long as possible, and 23% are considering reducing the hours for part-time employees below the threshold to avoid mandatory health coverage.

The survey also found that:

• 85% of respondents believe their benefits costs per employee will increase over the next five years because of the PPACA.
• 68% of employers plan to reevaluate their benefits strategy because of the PPACA.
• 70% are considering expanding wellness programs to help manage healthcare costs.

With so much uncertainty and potential cost at play, Lusk says companies might reexamine their traditional role in providing healthcare coverage. However, dropping healthcare benefits and sending employees out to find their own care on government-sponsored health exchanges presents its own sets of risks and reward, and depends heavily on the type of business. "Companies would make decisions around how transferable the skills are and how easily somebody is replaced," Lusk says.

Some employers would feel that dropping healthcare coverage would put them at a significant disadvantage with competitors for recruiting talent. However, Lusk says money saved from cutting healthcare coverage could be used to provide other incentives that employees might actually prefer.

"Let's say a company pays $8,000 a head today, and the penalty to drop insurance is $2,000 or $3,000 or a substantial difference. They take the number of employees times that difference, and they generate a pool of money. With that money they say, 'We want to bolster our 401(k) match, or a profit-sharing plan, or start a variable pay plan where everyone benefits from the company's success,'" he explains.

"This could create some tremendous flexibility for creative organizations to relook at all their rewards, understand there may be a new alternative for healthcare, and decide if for them they have to sponsor healthcare," Lusk says. "If there is money saved from that, they need to show how it can be redistributed in a new way."

The problem for many companies, Lusk says, is an inability to think "holistically" when it comes to redesigning benefits structures. Employer-based programs like workers compensation, health insurance, and retirement plans tend to be looked at in isolation.

"Companies could benefit from looking at [these programs] holistically and looking at them concurrently and saying, 'Do our employees value these programs?' If there is an area that isn't that important but there is a lot of money, maybe that is the place to cut back and redistribute. It doesn't have to be about cutting costs. They can think about redistribution."

Many companies would be loath to stray from the norm and offer pay and benefits that aren't comparable with competitors. But Lusk points out that "the reasons why individuals are attracted to or stay with companies are not those transactional benefits around comp and benefits, but those relational rewards around environment, understanding the organizational strategy, communication from leadership, and learning and development." Benefits are not the main drivers in employment decisions—at least, not yet.