Employers Urge a Cautious Pace With Health Care Legislation

By Linda Havlin

Aug. 6, 2009

Employers want health care reform to reduce their health care costs, improve the health of their employees and help them become competitive in the global marketplace. They are moved by a sense of social responsibility and proud of the role they have played in providing health care to millions of Americans.

But alongside their hope there exists a real worry: that a complex restructuring of the health care industry could, in the end, increase employer costs.

A majority of employers are concerned about the magnitude and risk of health care reform. A recent survey of 329 U.S. employers, conducted by Mercer found that 67 percent would rather see health care reform phased in gradually than enacted all at once. As with implementing their own strategies, they support holding back on approving some reform elements because the associated costs are not known, the elements are less critical and the impact on overall health care spending is uncertain.

More than half of employers support prominent components of comprehensive health reform proposals, such as:

• Increasing incentives for health care quality and efficiency, including pay for performance and health care IT (92 percent believe it should be part of reform)

• Requiring insurers to offer individual coverage and eliminating exclusions (84 percent)

• Requiring individuals to obtain coverage (69 percent)

• Requiring health care plans to cover wellness and preventive medicine (82 percent)

• Introducing exchanges (74 percent)

Not surprisingly, though, a majority of employers oppose an employer mandate and loss of ERISA protection because it eliminates their control over cost and increases their administrative expense to cope with local mandates. They have seen how mandates have driven up the cost of fully insured coverage and they fear that adopting mandates would make coverage unaffordable.

Employers are not alone in their concerns. The Congressional Budget Office has also voiced concern about whether the current drafts of reform legislation could bend the cost curve up, not down.

So, what is an alternative approach? As a first step, we need to focus on how to reduce our collective cost and focus on improving outcomes. To do so requires some fundamental changes:

• Change payments from unit cost to bundled arrangements

• Require providers to participate in accountable care organizations and other patient-centered care management models such as medical homes

• Reward providers for continual improvement

• Increase the number of primary care physicians (to serve the spike in demand for primary care that health reform will create) by offering doctors incentives to practice primary care

Employer innovation
Employers have demonstrated their ability to spend health care dollars more effectively. Health reform should build on their innovations. This requires providing employers and other payers with access to credible data about provider performance and cost drivers.

Federal health care reform can help by requiring health care plans to adopt pay-for-performance approaches that reward physicians who improve the health of their patients based on cost-efficient use of resources and patient satisfaction.

Tougher individual mandates
Market reform and the individual mandate are linked. One can’t succeed without the other. Health care plans have already signaled their willingness to offer coverage and eliminate their exclusions. There are two threats to their ability to make that coverage affordable:

• One threat comes from locally mandated benefits. State and city legislators, unlike corporate benefit managers, treat health plan design with an open checkbook. Federal officials must create a national minimum benefit plan design that is affordable and that all health plans could adopt as an alternative to state mandates.

• The second threat comes from weak laws surrounding an individual mandate. We’ve seen from the recent experience with health reform in Massachusetts that many individuals are acting in their own self-interest and electing coverage for a short period and then dropping it when their need has passed. An individual mandate should not allow people to simply opt in and out of coverage.

Why employer control is better than a mandate
Employers’ resistance to a mandate forcing them to provide health benefits stems from concerns that they will lose their ability to control costs and provide consistent plans across geographies.

Any reform legislation should strengthen employer-sponsored efforts to improve workforce health and productivity by increasing incentives that help employers better understand employee health risks, increase participation in care management programs, and improve employee health through lifestyle improvements. Many employers have held back in doing more because of legal uncertainties around potential discriminatory treatment. Employers should have the freedom to actively engage their workforce in living healthier lives without fear of lawsuits.

Public plan
Surprisingly, given the hue and cry from employer groups, 67 percent of respondents in our survey supported the concept of a public plan. However, only 24 percent viewed it as a high priority.

One reason for skepticism is employers already absorb cost shifting created by government pricing. Both they and the federal government agree that fee-for-service payments to doctors and hospitals need to be based on outcomes, but, until then, the disparity between public and private payments needs to be closed.

Given the political and policy complexity of health care reform, it is unlikely that we’ll get all the pieces right immediately. Better that reform happen over time. Most employers gradually phase in their strategies. Their programs are not static. Making large-scale change happen all at once may be unrealistic.

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