Now that Health Care Reform has passed and is known as ObamaCare; what should an employer do?
1- Employers can lobby their Congressmen and ask that they Repeal ObamaCare and Redo it. (See how to do this below at the end of this article)
2- Employers can “sit back” and see their premiums increase and their coverage change.
3- Employers can drop health coverage and pay a tax penalty.
4- Or Employers can take a “Pro-active” approach and Redesign their benefits plans while waiting to see if options 1-3 above become more attractive.
I recommend that you seriously consider option 4 above. Take a “Pro-Active” approach. Making changes right now and perhaps “junking all your prior benefits” makes sense. It might seem that it is costing you money and you just lost your prior years of effort, work, and the expense of all your old benefits. So what should you do?
The best thing you can do is to manage by the Law of Sunk Costs .
Let’s suppose in the last few years you designed, created, found software, and implemented the very best benefits program that is the envy of the business community. By now, the benefits plans are functioning well, the software system is bug free, has been running for a couple of years, doing what you want, etc... Let’s suppose you have invested more than $1 million dollars in consulting fees, plan design, software, hardware and implementation costs alone. In addition, you personally have invested years of blood, sweat and tears into creating this benefits plan
Now let’s suppose that a new law called ObamaCare is passed. Then someone approaches you with a system that anticipates benefit changes needed because of ObamaCare. Should you explore redesigning your benefits plans again? Why not just wait? Remember, you’ve just spent years of work and $1 million dollars for your old benefits system that everyone in the business community covets. But just how much is it really worth?
It is worth nothing.
All that time and effort is what we call a "sunk cost." It is irrelevant to the situation at hand. The real issue is whether redesigning and changes your benefits now are worth it.
You have to look at the economics of the situation as it stands right now. The law of "sunk costs" says that it doesn't matter what you have spent in time, resources and even capital/money in the past. You must base all future decisions on their potential return on investment (ROI). You need to ask yourself from this point forward what are the benefits and costs.
Starting today, which option would be more profitable and risk-free for your company? For years, we have been advising our clients that the best benefits management decisions and options are obviously those that bring the highest rate of ROI to the organization.
Let me give you an example. If management can buy a new machine costing $100,000 that saves the company $100,000 in cost of production, there is not a manager alive that would object to having that equipment. Why? Because it generates a 100 percent return on invested capital.
So if redesigning your benefits plans right now will generate a greater ROI than staying where you are at; Then you need to consider changing your benefits plans right now.
Recommendations that Employers should consider and ask for:
Explore changing your benefits plans today.
It seems to me that every employer should consider going to some high deductible medical plan and getting their premium cost as low as possible. Then consider putting the savings on the premiums into a Health Reimbursement Arrangement (HRA under Section 105) today.
The employer will control the funds and yet can encourage their employees to be efficient consumers by Giving them incentives with the use of the funds in the HRA. You can do this today. And should.
Then you can watch options 1-3 above and see if they become more attractive based on Return on Investment (ROI).
So you must still evaluate repeal, redo or continue with redesign to really help control health care costs going forward.
In the long run we will also need to change individual behavior, lifestyle/wellness and encourage prevention.
But here are six additional things that we can be working on to help change Health Care:
1- Provide the same tax deductions on both the Federal and State levels for health insurance. Individuals and Employers should get the same tax deduction. Don’t remove or reduce the current employer provided tax deductions. But would any employer honestly consider providing housing, clothing, and food on a pre tax basis for their employees? So why is health care allowed to be on a pre tax basis just for employers?
2- Fix Social Security and Medicare so they are more efficient. The answer is to offer part of these payroll taxes into employer Health Reimbursement Arrangements (HRAs) and into individual Retirement Savings Account (RSAs) like a Roth IRA.
In 2005 over 8% of GDP was for Social Security, Medicare and Medicaid. Just taking 50% of those funds and investing them in individual Accounts would cause tremendous growth to the economy. Why?
Because these accounts could be invested in stocks, bonds, mutual funds, real estate, etc... These accounts could be even better than a Roth IRA if the contributions could made pre-tax, the investments would grow pre-tax, and the withdrawals would be pre-tax.
3- Remove State mandated limits and coverage only available by each State for those who live there. If we allowed freedom of choice of healthcare across state lines- competition would increase. If we removed the many State limits and mandates; then the cost of such plans would be dramatically less. If we allowed association type plans that could be offered across State lines; people could “pick and choose” which plans they wanted to belong to.
Also remove any Mandates (with their corresponding penalties) imposed by the States or Federal government requiring coverage.
4- Streamline the Food & Drug Administration (FDA) drug approval process. We need to get drugs approved and in the marketplace faster. Have the FDA focus solely on the approval of new drugs based on Safety. Let the testing of efficiency and efficacy of drugs be provided on a voluntary basis by the Drug Companies and outside monitoring groups.
Let the marketplace determine if a drug will be successful or not. If a drug is not effective or causes problems; then the marketplace will determine the value of the drug and the value of the damages due to the drug.
5- Price Transparency on all medical procedures and quality ratings on care. If you give people information and rank the quality of care; then you will have increased competition and eventually lower costs. Just like shopping for cars, car insurance, homeowners insurance, life insurance, etc-- price transparency only leads to better decisions about health care.
6- Pass meaningful Tort Reform.
Did Employers do enough to help defeat ObamaCare?
Almost two years in November 2008 the International Foundation of Employee Benefit Plans (IFEBP) surveyed employers. 71% contended that the health care delivery system needed major surgery. Well they got what they wished for.
But in the same survey only 25% said they believe the current health care system should be replaced with a government-sponsored program and only 20% support replacing the current health care system with universal coverage purchased by individuals. Just over four in 10 employers agreed that employers should be forced to provide coverage.
But they still wanted and planned to make changes to their benefits even while ObamaCare was being debated and designed. Here were the plans that most employers were considering:
- 32% of employers have implemented consumer-driven health plans (CDHPs) like HRAs. The number is much lower among public and multiemployer plans with only 17% and 12% respectively offering CDHPs.
- Respondents still have faith in the consumerism concept, with 62% citing consumerism as a strategy to improve health care quality and reduce costs over the next two years.
- 75% use disease management programs to improve health care quality.
So this time employers should take a more “Pro-Active” approach and help to change ObamaCare via Repeal, Redo or Redesign.
Employer cannot say they did not know what ObamaCare was going to do. Back in March 2008 Christopher Tkaczyk wrote the following which was the consensus and discussed by all the major publications. I quote it in its entirety since it clearly shows what ObamaCare was going to be providing to employers:
“NOW FOR THE DEMOCRATS. The core of their plan is a "pay or play" option for employers. Large companies would have the choice of either providing benefits for workers or dropping their coverage. If they chose the latter, they would pay a mandatory payroll tax to support a new government-administered system. That system would have two parts: a Medicare-like public program, and a menu of private options similar to the generous plans available to U.S. government employees today. Workers who are self-employed or lack insurance would go straight into one of these two options. Low-income Americans would receive federal subsidies to purchase the premiums.
In practice, the system would quickly swell the ranks of Americans with government-paid health care. Remember, health-care costs are rising far faster than wages, so companies have a strong incentive to pay the tax and erase that rapidly growing burden from the books. It's also likely that the government plan will offer better benefits than many, or perhaps most, corporate plans. In fact, the Democrats call for rich standard benefits packages based on the plan offered to federal employees. Those packages would have deductibles of just $300 and offer prescription drugs, mental health benefits, and "spinal manipulations" (i.e., chiropractic services), among a cornucopia of other benefits. As a result, the federal plan, potentially packed with new benefits pushed for by lobbyists for various medical specialties, will quickly cause an exodus from employer plans.
The standard benefits package isn't just a bad idea because it will substantially raise the cost to taxpayers. It will also make it virtually impossible for Americans to buy insurance tailored to their needs. Suppose you're one of those 25-year-olds. You probably don't want to spring for a full-blown plan that covers old-age diseases like Alzheimer's and would rather save some money and go with a low-premium, high-deductible plan. But the Democrat approach requires that any competing plans be "actuarially equivalent" (Clinton's term) to the federal employee plan - which translates as a generous minimum standard for health insurance. "With that mandate, you rule out high-deductible plans," says Gruber. "It would make it very difficult to design one that would qualify."
The Democrat proposals have some additional drawbacks. First, the Dems want to heavily regulate the insurance industry by limiting everything from profits to marketing expenses. If the earning power of insurers is determined by federal regulators, their pricing will be too, and thus they will evolve into the equivalent of public utilities. Would you rather have medical prices set by fiat or by nationwide market competition? Second, the Democrat plan exacerbates the fundamental problem in the American health-care system, which is that no one has any incentive to care about price. (How much is that MRI center charging for your ankle scan? Who cares? Just hand over the $50 co-pay and never you mind.) Creating a huge new medical superstructure would shift far more spending to third-party providers, chiefly the federal government, giving consumers even less incentive to concern themselves with the price of an MRI - or any other service, from an elective wart-removal procedure to a life-saving heart bypass. "The Clinton and Obama plans would enormously increase total health-care spending, but disguise the extra costs by shifting them to taxpayers," says John Sheils of the Lewin Group, a research firm that does statistical modeling for health-care plans.
Despite all that, the Democrats' plan is politically more viable…... Their program doesn't involve anything that smacks of a cut in benefits, and it's just easier to win with largesse.”
Remember the Law of Sunk Costs.
Make benefits plan redesign a top priority and explore the Return on Investment of Implementing a HRA today.
I believe employers did not do enough to get the type of health care reform we needed. Instead we ended up with Obamacare.
If you are interested in expressing your opinion and reading the opinion of Benefits Professionals- please read the many articles and opinions expressed at InsuranceNewsNet magazine, Employee Benefit News, Employee Benefits Advisor, AIS Publications, etc..
If you want to get involved with Repeal and Redo ; and you want to express your opinion- Here is an online link for the US Senate and the House of Representatives to the most updated contact information for your representatives.
HRCG is providing help to employers, administrators, and insurance professionals On HR and Benefits issues. Their partners have been in business over 25 years And deliver cost effective solutions for plan design, documents, and software.
Contact: Rob J Thurston, President HRCG
(888) 438 9445
Rob J. Thurston, President of the HR Consulting Group, has been a national speaker and noted author on HR consulting and systems development since 1981. He has implemented and designed some of the largest selling employee benefits software systems nationwide while part of an international brokerage firm, a national administration firm and while as a consultant. Currently, he is working on the development of several advanced technology systems for both HR and for employee benefits.
He has available at no cost or obligation a comprehensive listing of software and consulting firms providing advanced technology systems for benefits enrollment, communication and administration. Please request this list by calling Mr. Thurston.