The financial impact of healthcare reform will be to increase expenses in the system by an additional .9% per year, (per the CMS Office of the Actuary), and by as much as 10% to 20% for employers over the next decade according to our preliminary analysis.

There are 3 key drivers leading to the acceleration on costs:

1.  More people with insurance will drive up demand for services.

2.  Reduced payments under Medicare and more people on Medicaid will increase the cost burden shifted to private insurance plans; and

3. Federal benefit mandates and underwriting restrictions require employers and health plans to provide richer benefits to more unhealthy people.

From our standpoint, the impact of reform will create a basic market breakdown that looks something like this:

Here are 5 things that executives will need to do to put their organization in the “Best in Class” category:

1. Seek Strategic Advantage:  Make healthcare a strategic priority with the CEO in charge.
2. Drive Engagement & Accountability: Make healthcare a priority for your workforce.
3. Data-Data-Data: Use information on your key Cost/Productivity/ Utilization Drivers to measure, monitor and improve key performance metrics.
4. Ops: Execute through your operations team, not just Finance and HR.
5. Take Control: Self-insure, or set yourself on the path to be able to do so over 3 years.

Everyone wants lower healthcare costs, but are you willing to do what it takes to achieve them?

A couple weeks back I called your attention to Henry Waxman’s Energy & Commerce inquiry into impact of HCR the earnings of companies like John Deere, AT&T et al.

Surprise surprise…Without any of the fanfare of his initial inquest, Waxman last week cancelled the testimony to give the employers additional time to assess the positive impact of the legislation.  From Businessweek:

“As the committee examined the potential impact of the new law on large employers, several companies and their representatives expressed the view that the new law could have beneficial impacts on large employers if implemented properly…Companies like AT&T, Verizon and a range of stakeholder associations are hopeful that the benefits of the new law will outweigh the costs,” Waxman said in the memo, “but they cannot quantify the benefits until the law is implemented.”

Waxman’s official statement is here.

Read between the lines.  The earnings pronouncements were not disputable…A + B = C, no questions asked.   Lose the tax deductions, incur the taxes, reduce the earnings.

From House Minority Leader John Boehner:

House Democrats canceled this hearing because they don’t want to give America’s employers a forum to tell the public how President Obama’s new health care law is already hurting our economy and hampering job creation.  Chairman Waxman thought he could intimidate businesses into keeping quiet about this new job-killing health care law, but when they called his bluff by continuing to speak out, he chose to pull the plug.

What are the chances Waxman will ever revisit the issue?

The good news is that Massachusetts now has the highest state level of population with insurance in the country with a mere 2.6% left uninsured. The bad news is that the program has done nothing toward tackling the rising cost of healthcare.  With a significant state commitment to subsidizing costs, the original estimates pegged state costs for Commonwealth Care at $725 million per year. In two years time, that projection has been increased by 20% to $880 million per year.  In addition to the economic downturn, the state has been faced with significant budget concerns some of which are attributed to the weight of the new healthcare program. In response to growing financial pressures, in 2009 Massachusetts took the unpopular position of eliminating 30,000 legal immigrants from the program to reduce expenses by $130 million.

Now, the latest challenge. Recently, several state insurance companies filed rate increases for individual and small group policies (less than 50 employees) ranging from 8-32%. In most states, this process has historically been a rubber-stamp process. However, the State Insurance Commissioner, backed by Governor Deval Patrick, has denied the requested increases for April 1 and is requiring that current rates remain in place. Six insurers have filed an injunction against the state, four of whom had operating losses in 2009, and indicate that the increases are required to address increases in costs. As of Monday, a judge has ruled that the injunction will not be granted and that the insurers had not exhausted their administrative appeals process. Needless to say, price controls on a private industry will remain front and center in both Massachusetts and on the federal level as both programs struggle with effective means to contain costs. Is this a foreshadowing of ObamaCare?

As we see with most pieces of legislation, politics will play an important part of public policy. Governor Patrick will be in a highly contested fight for his seat in Massachusetts in 2010 and some question his strong stance against insurance company’s rate increases as posturing against one of his formidable challengers, Charlie Baker, former CEO of Harvard Pilgrim Health.

In addition, as Mitt Romney eyes a potential presidential bid for 2012, it will be interesting to see how he attempts to nuance the success (greater number of insured) with the programs financial troubles and its similarities to the recently passed federal reform approach.

It may be as good a sport as Yankees vs. Red Sox watching this one unfold…

Click on Chart to Enlarge

More info on the announcements here and here.

In each of these situations, the bulk of the adverse affect comes from the loss in deductibility of the Retiree Drug Subsidy (RDS) program associated with Medicare D coverage provided by these companies.  RDS provides a federal subsidy worth 28% of the cost of prescriptions paid by companies on behalf of Medicare beneficiaries enrolled in Medicare D “creditable coverage” plans.  By and large, these chareges reflect the fact that beginning in 2013, the tax fee status of these subsidies is eroded as the underlying expense is no longer deductible.

CEO’s from these companies have been called to testify in front of Henry Waxman’s (D-CA) Energy and Commerce Committee on April 21.  Pay close attention to the outcome of these hearings.  Although Waxman’s intention is clearly to challenge and discredit the announcements, the testimony could shift public focus more directly onto the jobs impact of the reforms, and any lasting momentum in that direction could have a big impact on the political forces fighting the new law.

I’ve noticed that something really scary has happened for me during this year long debate:   I think I really understand what a Trillion Dollars is!!

Seriously, I have heard the T-word thrown around for along time when the federal budget is being discussed or military expenditures, etc. But for most of my life, it was in one ear and out the other–I never really took the time to comprehend how much a trillion dollars really is.  But with the bailouts and the Stimulus bill and healthcare reform bills all approaching the T-level, I think I really understand how big a number it really is.

Or how small it is, I should say.

Last night I was flipping through the Trustees Report on Medicare and Social Security (I know…get a life…it’s March Madness time!!!), which includes the dire prediction that the Medicare  Hospital Insurance (Part A) Fund will be gone–gone-gone-in 8 years.  In 2017, I will be 54 years old, still 11 years from being eligible and it will be gone.  I have been paying in 2.9% of my income (1.45% as employee and 1.45% as employer) into Medicare for as long as I can remember, and there will be nothing left for me!!!

Even more scary is the fact that, according to the National Center for Policy Analysis (NCPA), the accumulated cost of the Medicare benefits that have been promised to me and a lot of other people will cost $89.3 trillion in todays dollars.  Add in another $17.5 trillion in Social Security, and the combined Medicare/Social Security obligations are $107 trillion more than we have on hand.

Now that these figures are so unimaginable that most of us can’t fathom or process the impact.  But consider that U.S. corporations have been required to account and report these post-employment obligations for nearly 20 years (FAS106), and state and local governments for the past 3 or 4 (GASB43/45).  What makes private business and local government any different that the federal government?

What makes the federal government different is this:  it’s the federal government!!

Washington is focused on  spending nearly a trillion dollars in the very worthy attempt to cover an additional 30 million (we all agree it would be great to cover everyone…) , they are poised to not deliver on the promise to provide coverage to the 270 million of us who are expecting coverage when we are old(…but not at any cost!!!).

Worst of all, over $500 billion (half a trillion for you those of us who comprehend) of the $940 billion  comes from cuts in MEdicare funding..  That’s right–cuts in funding for a program that will already be bankrupt in 8 years!!!

I just can’t understand what’s going on in these polls…do you???

At the conclusion of President Obama’s health reform summit yesterday, the President called for another 6 weeks of discussion and debate.  Check out his video from YouTube below.  It’s almost 4 minutes long, but if you fast forward to the 3:00 mark you pick up his main concluding points:

So where do we go from here?  Most telling for me is not his challenge encouraging both sides to work toward compromise over the next 6 weeks, but what he is willing to do if compromise remains unachievable:

“….if we can’t,  then I think we’ve got to go ahead and make some decisions…then that’s what elections are for…we have honest disagreements about the vision for the country and we’ll go ahead and test those out over the next several months ’til November…”

To me, in the absence of substantial concessions from Republicans (not happening!)  this means that he will continue to press his case before the people to see if he can get the traction he needs to push ahead.

If he builds any momentum, or if he is pressed by Dem’s to push for a final conclusion, then we’ll see the so-called nuclear option, the use of the budget reconciliation process whereby only 51 votes are needed to get through the Senate.

This would be a very dramatic and politically very risky strategy.  There is a very entertaining debate about the political impact of reconciliation via Politico here.

But an end is nearing…even if it means enduring another 6 weeks of winter!

We are coming off one of the most difficult underwriting seasons we have seen for some time, with the vast majority of employers facing double digit increases and many seeing 20% or more and a fair amount approaching 40%!!  This is really, really serious, and there are some very strong forces that could push these rates even higher.  Specifically:

1. The aging of the workforce, as older workers hang on longer because of the volatility affecting retirement savings;

2.  Expansion of enrollment in government plans like Medicaid and Medicare due to high unemployment and government action to relax qualification standards; and

3.  Aggressive unit price negotiations of hospitals and providers as they struggle unsuccessfully to get their expenses in line to meet the the likely reductions in Medicare and government funding.

Within Ovation Benefits, we are working hard to really understand the needs of our customers and deploy our people and our resources in such a way that we are 100% aligned with these needs and the key operational proiorities that will deliver the results our customers demand.

For the past 3 or 4 months our Senior Management team has been engrossed in a top to bottom strategic planning process designed to re-focus our business to take advantage of the market opportunities that will be emerging over the next few years, with or without federal health reform.  With so much uncertainty in the air for so long, we have found it really helpful to focus on what our clients really, really want from us, which we believe is:

• Costs that are 20% or more lower than they are today;
• Annual increases that are less than 5% and more like CPI; and
• Employee satisfaction rates that are 90% or better...

Finding the recipe to deliver these results is really hard, and will take a ton of creative energy, experimentation and failure and ultimately great leadership from employers to deliver the results we need to ensure that we can compete in the global economy.  But it is possible, and we must find the way.

The Scott Brown Senate election has effectively killed the Democrat-led push for comprehensive health reform in Washington.  But the need for systemic change is more acute than ever, as reflected in the recent Health Affairs article indicating that 2009 health care spending increased at the fastest rate in 50 years!!

We spend on average about $10,000 per employee per year for health insurance, and it is a huge expense and a huge problem for most employers.  But did anyone actually think the government was going to make the problem go away anytime soon?

The bulk of the cost of private insurance in America is borne by organizations who provide healthcare as part of the employment based system of group insurance that has evolved since the federal government enacted wage and price controls during World War II.   Since that time, employers have provided these benefits as a condition of competing for labor in the marketplace, and they have managed these programs with a sense of paternalism that can be described as follows:

Traditional Paternalism: As an employer we provide employees with the richest benefits possible at the lowest cost, while providing them with maximum flexibility and choice, minimal disruption in their habits and little or no impediments to access as much care as they need from whatever providers they choose to use.

This view of paternalism has forced employers to manage costs by shifting incrementally more of the burden to employees while still allowing them to get whatever they want, wherever they want, whenever they want– with minimal influence or incentive to make informed choices about the cost or quality of the care they receive or the personal decisions they make about their health.

Driven by the deep recession, the continued pressure on healthcare costs and the intensity of economic competition around the world, there is a small but growing group of employers who have a different view:

Paternalism Today: As an employer we know that the most important thing we can provide our employees is a solid and stable paycheck, and we are willing to challenge employees and hold them accountable for the decisions they make about their personal health and the healthcare they consume in order to achieve the sustainable improvements for the individual and our organization that will ensure our success in the market.

Solving the problem, as opposed to “managing” it, requires a fundamentally different perspective that reflects the harsh realities of the world today and respects the intelligence and attitude of the employees they are seeking to reward and motivate.

It’s not easy, but it is the best answer to the question “Who’s problem is anyway?”