The rapidly changing health care landscape has broadened the involvement of finance executives in many aspects of employer-provided health care benefit assessment and decision making. Finance is more influential than ever in setting health care strategy that leads to high-performing plans — especially as decisions become more complex, companies continue to manage costs aggressively, the federal excise tax approaches in 2018 and employers rely more heavily on a healthy workforce to boost the bottom line.
The questions and answers below, and in the larger article (PDF available for download below), offer essential guidance for finance executives to help create a cost-effective, sustainable health benefit program for their organizations.
What is our health care cost? What's driving it?
The cost of health care claims represents a large proportion of every organization’s benefit budget and overall labor cost. In our low-inflation environment, where businesses have less pricing power and need to defend margins with thoughtful expense management, organizations must establish a competitive unit cost of labor, a sound overall total rewards expenditure and future cost controls. Yet understanding true costs is challenging. Beyond the direct cost of health care claims, poor workforce health creates an indirect cost in unscheduled absences, lost productivity and unfocused workers. A healthier workforce demonstrably reduces absences, improves productivity and drives business results.
Future health care costs will also be affected by the Affordable Care Act (ACA). The ACA is indirectly reshaping how health care is configured by expanding coverage, requiring new benefits and defining who is covered, and how health care is measured and delivered in the U.S. The government is also attempting to control costs by levying an excise tax on high-cost health care plans beginning in 2018.
How do we evaluate whether private exchanges are the best way for our organization to optimize health programs' performance in the years ahead?
Employers are actively rethinking the positioning of their health benefit plans, both in the context of their overall total rewards goals and the desired employee value proposition. In the process, they are examining their role in delivering benefits, the array of benefit delivery platforms available (ranging from the traditional self-managed to the use of a private exchange style model) and the desired employee experience. Both the traditional self-managed approach and the exchange model require continued employer sponsorship. Employers are most likely to explore the private exchange model for actives when they question their ability to manage costs effectively, seek to redefine their role in benefit plan management, or wish to utilize the exchange model as a vehicle to effect change (ranging from greater choice to improved price transparency and an upgraded consumer style experience). However, for retirees, many employers have already exited.
To date, virtually no larger employers have elected to exit active health plan sponsorship. However, exit may well prove to be a more viable option if the public exchanges open to employer groups after 2017 and/or health reimbursement accounts funded by employers become permissible as a source of funds to pay for an employee’s coverage in the public exchange. Much more needs to unfold before we expect to see activity in this space.
When assessing these options, consider how resources are deployed, the frictional cost of change, the employee experience (new technology and more choices) and for some employers, a defined contribution strategy. Also, recognize that there are options for active employees that blend the best of self-management and attributes of an exchange-based approach. The decision for employers sponsoring pre- and post-Medicare retiree health care benefits may be clearer: In some cases, retiree exchanges are more affordable for both the employer and the individual.
Where can finance focus to help optimize our health programs?
Opportunities to improve program performance and increase the value of health plans should focus on the following areas:
- Effective pharmacy management
- Specialty pharmacy
- Generic drug use
- Health care delivery
- Health and wellness programs